What is the Healthcare Freedom Act?

The last few years have seen an increased focus on legislation regarding health savings accounts (HSAs), one of the latest being the Healthcare Freedom Act. The bill, introduced by Rep. Chip Roy (R-Texas) on October 7, 2022, would create a new tax-free health savings account type to replace HSAs and make them available to all Americans. The proposed legislation would have three distinct effects for account holders if implemented as it stands:

• Relax the HSA eligibility rules
• Triple the contribution limit
• Expand eligible expenses

The bill would decouple HSAs from employer-based health benefits and high deductible health plans (HDHPs) in the form of health freedom accounts. Additionally, the Healthcare Freedom Act would increase the maximum annual contribution to HSAs from $3,850 to $12,000, or to $24,000 for a joint contribution. Currently, the bill has been referred to the House Committee on Ways and Means.

Benefits of an HSA
A recent Alegeus survey found that nearly 80% of respondents are concerned about their ability to afford long-term healthcare into retirement. An HSA is a long-term savings vehicle that allows account holders to save tax-free money to pay for current and future out-of-pocket healthcare expenses – and even invest that money to maximize savings. HSAs are known for their triple tax advantage, helping Americans save as much money as possible for healthcare expenses.

How many Americans have an HSA?
Let’s take a look at how many people would be affected by this bill. According to Devenir’s year-end 2022 report, health savings accounts grew to $104 billion in assets held in almost 35.5 million accounts, a year-over-year increase of 6% for assets and 9% for HSAs. The steady increase in accounts shows that HSAs are popular but due to the HDHP requirement and other restrictions, most Americans are missing out on these tax advantages. The Health Freedom Act would significantly increase the number of Americans who are eligible for an HSA-type plan.

Support for employer-sponsored health benefits remains strong
While it is too early to tell the outcome of such legislation, it still brings up a good topic for discussion. This is not the first time we have seen a bill proposing the idea of “HSAs for All” and it likely won’t be the last. Despite these legislation proposals, support for employer-based health benefits remains strong, according to an EBRI and Commonwealth Fund study. Previous predictions argued that Americans would lose interest in employer-based plans, yet instead we have seen the opposite with more than 70% of working Americans utilizing employer-sponsored health insurance.