HSA and ICHRA Changes In New Reconciliation Bill
What the New Reconciliation Bill Means for Benefits
Congress recently unveiled its newest reconciliation bill, nicknamed “The One, Big, Beautiful Bill.” Among the many proposals are several significant changes to Health Savings Accounts (HSAs) and Individual Coverage Health Reimbursement Arrangements (ICHRAs) that could reshape how employers and employees approach benefits planning.
What's New for HSAs?
If passed, these changes would take effect for tax years and plan years beginning after December 31, 2025. Here’s what you need to know:
Expanded Eligibility
- Medicare Part A enrollees could contribute to their HSAs
- Individuals with direct primary care memberships (up to $150/month) could be HSA-eligible
- Anyone enrolled in Bronze or Catastrophic plans on the Exchange could qualify
- Employees with access to basic on-site medical clinics wouldn’t lose HSA eligibility
- Spouses of health FSA participants could maintain their own HSA eligibility
New Ways to Use HSA Funds
- Direct primary care membership fees would become eligible expenses
- Physical fitness costs including gym memberships would be covered (up to $500/year)
- Expenses incurred 60 days before HDHP enrollment would be eligible if the HSA is established within that 60 day window
Contribution Enhancements
- Both spouses could make the $1,000 catch-up contribution (for those 55+) to the same HSA
- HSA contribution limits would increase by an additional $4,300 (individual) or $8,550 (family), with phase-outs starting at incomes of $75,000 ($150,000 for married couples)
- Unspent funds could be transferred from health FSAs or HRAs into HSAs for employees newly enrolled in HDHPs
ICHRA Gets a Makeover
The bill also proposes significant updates to ICHRAs, including:
A Fresh Identity
- ICHRAs would be rebranded as “Custom Health Option and Individual Care Expense Arrangements” or “CHOICE Arrangements”
- Current regulations would be codified into statute with some modifications
Better Tax Treatment
- Employees could pay their portion of premiums pre-tax through Section 125 cafeteria plans, even for Exchange policies
- ICHRA amounts would be required on employee W-2 forms
- Small business employers (fewer than 50 employees) offering ICHRAs would be eligible for a new tax credit for the first two years they establish a CHOICE arrangement
Other Employee Benefits Changes
The draft bill also addresses several other employee benefit programs:
- The $5,250 tax-free student loan repayment assistance option would become permanent (currently set to expire after 2025).
- The educational assistance limit (including student loan repayments) would finally be indexed for inflation starting in 2026, after being fixed at $5,250 since 1979.
- The elimination of the tax-free $20 bicycle commuting reimbursement would be made permanent.
What Happens Next?
“This reconciliation bill isn’t just tinkering, it is a significant pivot in how ICRHAs and HSAs interact with a modern and savvy workforce. Every ICHRA and HSA now needs to be designed with a deeper awareness. It is critical employers are working with vendors who can deliver real-time automation, substantiation, and clear compliance solutions.” said Donna Wilkinson, Counsel for Ameriflex. “This reconciliation bill is Congress’s signal that they want innovation in the health benefit space, but only if it comes with compliance.”
The reconciliation bill passed the House on May 22, and it now makes its way to the Senate. While this bill is exciting, it’s important to remember it still has to pass the Senate and be signed by the President to become law. We learned from previous legislative efforts around healthcare reform that it’s wise to maintain a “wait-and-see” approach. Many promising proposals often look quite different from their initial form.