If Trump’s recent executive orders are any indication, the administration seems to be “pro” HSA. The most recent directive, issued on Thursday, October 3rd, called for a change to the rules regarding who can contribute to medical savings accounts (MSAs) as well as how long health savings account (HSA) holders can contribute to their accounts, making both more accessible.
Current Rules Around MSAs and HSAs
MSAs are savings accounts that are linked to high deductible Medicare Advantage plans. High deductible Medicare Advantage plans are Medicare health insurance plans that are offered by private insurers. These plans can bundle all of the medical coverage someone might need (e.g. hospital, outpatient, prescriptions, dental and vision) into one health insurance plan, whereas the government’s basic Medicare plan only covers hospital and nursing home stays and 80 percent of outpatient care.
Currently, if someone buys a high deductible Medicare Advantage plan, the insurer can also contribute money to an MSA for the recipient to help cover pre-deductible medical costs. But the individual is not allowed to contribute money to their own MSA.
Conversely, it is the individual and/or their employer who contributes money to their HSA. Similar to the rules regarding MSAs, in order to contribute to an HSA, you must also be currently enrolled in a high deductible health plan offered by private insurance. This means you can’t contribute to an HSA if you receive Medicare, even if you’re still working and your current employer offers an HDHP/HSA combination.
Proposed Rule Changes for MSAs and HSAs
Trump’s October executive order instructs the Secretary of the Department of Health and Human Services to propose new regulations that would enable individuals to contribute to MSAs. It also directs the Social Security Administration to no longer require people who receive social security benefits to also enroll in Medicare Part A (the insurance coverage that pays for hospital stays and nursing homes). This would free up seniors who are still working to buy their employer-sponsored HDHP and continue to contribute to their HSA.
How This Could Affect HSAs
As of December 2018, there were roughly 25 million HSAs in America and about $53.8 billion in assets managed by HSA administrators. By giving working seniors the freedom to buy their employer-sponsored HDHP insurance instead of forcing them onto Medicare, this executive order could increase both of these numbers.
It would allow people who were already contributing to HSAs to continue to do so longer, thus increasing the value of the assets managed, and it could also encourage people who were not previously contributing to an HSA to do so later in their careers. For instance, someone who gains access to an HDHP/HSA arrangement when they’re 60 might not see the value in starting an HSA if they only have five years to build a savings (even with the $1,000 per year catch-up allowance). But if they’re able to continue working and put off Medicare, opening an HSA might make sense.
It’s important to remember that nothing has actually changed yet. Executive orders are not law but are instead instructions the President gives government departments under his control. So they could result in legislation or rule changes or they could result in nothing. If you’re considering making a change to your health insurance based on this executive order, consult a licensed insurance broker or your human resources department to make sure you understand the rules as they currently stand and what is most beneficial for your situation.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.