Keep HSAs in the One Big, Beautiful Bill

COMMENTARY

Last month, House Republicans narrowly passed a comprehensive budget bill by a single vote, legislation that included some of the most significant changes to our health care system in over a decade.

The Senate has promised to amend this “One Big, Beautiful Bill Act.” One thing they shouldn’t change is the bill’s significant expansion of Health Savings Accounts, which permit individuals to set aside tax-free funds for future medical expenses.

These provisions will give individuals much more control over their care. And by injecting competition into the health care market, they could reduce what patients pay for care in the long run.

HSAs are triple tax-advantaged accounts where individuals can stash funds for future health needs. Contributions and earnings aren’t taxed. Neither are withdrawals, as long as they go toward qualified medical expenses.

HSAs empower patients to spend their health care dollars as they see fit. They can use the funds to cover out-of-pocket obligations under their health plan or pay for care directly at a provider that may be out of their insurer’s network.

Shopping around can save patients money. Providers sometimes offer discounts to those paying cash. And because people with HSAs are spending their own money, they’re motivated to skip unnecessary appointments and tests. 

Such consumerism puts downward pressure on the price of care. When providers have to compete for patients’ business, they have a strong incentive to deliver the highest-quality care for the lowest price.

Consider what’s happened in the market for LASIK, which people generally pay for out of pocket. Since 2008, the price of the corrective eye surgery has declined about 30% after adjusting for inflation. At the same time, the technology for performing the surgery has improved dramatically — and as a consequence, so has the procedure’s safety and efficacy.

HSAs can help bring that model to other areas of health care.

HSAs can be especially useful for young people, who can save money tax-free while they’re relatively healthy and watch it grow until retirement, when health expenses typically pile up. A 30-year-old who invests $200 in an HSA each month could accumulate almost $1.3 million by age 70, assuming the S&P 500’s annual return over the last century of roughly 10%.

Under federal law, only individuals with high-deductible health plans — which have a minimum deductible of $1,650 for individuals and $3,300 for families — can open and contribute to an HSA. That requirement excludes Medicare beneficiaries, people with traditional health plans and the uninsured. 

No wonder fewer than one in five Americans have an HSA. 

Federal law also limits the amount of money people can contribute to their HSA each year. In 2025, contributions may not exceed $4,300 for an individual and $8,550 for a family. 

The “big, beautiful bill” would relax some of these constraints. It would allow seniors enrolled in Medicare Part A only — the entitlement’s hospital insurance plan — to contribute to an HSA. Seniors could use the investments to pay for coinsurance, as well as dental, vision and hearing expenses, which Medicare typically doesn’t cover. Medicare patients could also save up for long-term care needs later in life. 

Republicans should consider adding an HSA option for people with Medicaid. Individuals could receive their Medicaid funds in a private HSA account, which they’d use to pay for health expenses on their own.

The current bill would also permit individuals with less comprehensive bronze or catastrophic exchange plans to contribute to an HSA. More than 7 million Americans have these plans, which feature lower premiums and higher deductibles. 

People on the exchanges could surely benefit from HSAs. In 2022, the Paragon Health Institute suggested allowing individuals earning below 200% of the federal poverty line to receive their Obamacare subsidies as an HSA contribution, rather than a tax credit. The standard enrollee “would benefit by about $1,400 each year,” according to Paragon’s research.

In addition, the bill would make it easier for married couples to use HSAs and allow people to withdraw funds for gym memberships and direct primary care. Individuals could even use their HSAs to pay for medical bills incurred before opening the account.

Finally, the legislation would double contribution caps for individuals and married couples earning below $75,000 and $150,000, respectively. These increases would gradually phase out for individuals earning up to $100,000 and couples earning up to $200,000.

HSAs empower Americans to choose the care that’s right for them. Congress needs to make them accessible to more Americans.

Sally C. Pipes is president, CEO and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It” (Encounter 2025). She can be reached on X.