Pandemic Bill Presents an Opportunity to Help Americans Manage Costs

Members of Congress are debating the content of the next pandemic-response bill. Several Health Savings Account expansion ideas are under consideration.

The politics of the proposed next pandemic-relief bill are a textbook study in dysfunction. House Democrats passed a $3 trillion bill in May, placing pressure on the Senate. Senate leader Mitch McConnell (R-KY) declared the bill dead on arrival at the Senate, and many Republicans saw the legislation as little more than a laundry list of Democrat priorities in the fall election campaign.

The Senate, under Republican leadership, has been slow to take up the measure, as GOP leaders said they wanted to assess the distribution and effect of trillions in spending from the first four pandemic-response bills before determining what additional help American businesses, workers, and consumers needed.

Now is the moment of truth. McConnell wants to hold the line at $1 trillion in new spending – all borrowed, as was the roughly $2 trillion (estimates of actual spending vary by plus or minus 10% of that figure) authorized by the CARES Act earlier this year. Democrats in the Senate are united behind the House-passed bill, whereas Republicans are deeply divided on total appropriation, focus, and details.

The Role of Healthcare

Senate Republicans largely abandoned healthcare after the Senate failed to pass a 2017 House bill (the Republicans controlled the lower chamber then) that made major amendments to the Affordable Care Act. The House passed two bills that expanded Health Savings Accounts in 2018, but the Senate never acted on them.

The Trump Administration, meanwhile, has been active in using executive powers to increase choices and reduce prices. The administration expanded short-term, limited duration medical coverage and association health plans, permitted Health Reimbursement Arrangements to pay premiums for non-group coverage, passed price transparency regulations, increased Health FSA carryover amounts, and, most recently, issued guidance around drug prices.

Pollster Frank Luntz has reported that healthcare will end up being the top issue in the upcoming presidential campaign. And since the Republicans must try to maintain or expand a tenuous 52-48 majority as they defend 23 seats (to the Democrats’ 12), it will be the top issue in Senate elections as well. 

Democrats have a clear vision of where they want to take the country. They want to increase government control of coverage and introduce government-run insurance plans to compete with private coverage. And many in the caucus – not yet a majority, and centered in the House – wants to shift to a single-payer system in which Congress and administration officials design, deliver, and finance medical care for all Americans.

Republicans reject that view. But they’re struggling to unite behind a comprehensive alternative, instead supporting incremental changes to the current system that appear to leave voters uninspired. That’ll be a problem if they can’t present a more comprehensive plan to voters – and soon.

One area on which many Republicans agree is the value of Health Savings Accounts, both in general and specifically during the pandemic. They’re weighing proposals to expand these account so that more Americans can enjoy tax benefits as they save for current and future expenses.

Health Savings Account Initiatives

GOP senators are discussing two Health Savings Account proposals for possible inclusion in the next pandemic-relief bill, which many expect to be passed before the Senate’s scheduled recess beginning Aug. 7. 

Temporary Decoupling. This is a new topic that has gained steam during the past two months or so. It has champions in both the House and Senate. Under this proposal, any adult could open and fund a Health Savings Account during the national pandemic emergency. This approach offers several benefits to hard-working Americans, particularly the tens of millions that remain unemployed after state and local governments shut down economic activity during late winter and early spring to manage hospital intensive-care unit volume.

• Anyone with unexpected medical bills – related to COVID-19 or other diagnoses or treatments – would be able to pay their out-of-pocket expenses with tax-free funds. That’s important at a time when many people who’ve lost jobs or fear losing jobs are tracking every dollar of expenses. Reducing the net prices of care by 25% or so represents welcome relief during a time of financial uncertainty. A $1,000 bill will cost only $750 or so when paid through a Health Savings Account.
• Health Savings Account distributions can pay medical premiums under limited circumstances. In this emergency, both circumstances are relevant: when collecting unemployment benefits or when continuing coverage by electing COBRA rights. A $1,600 monthly family premium may be difficult to manage, but a net cost of $1,200 after the Health Savings Account tax break puts less of a strain on a family’s budget. It’s the equivalent of paying three months’ premium and receiving the fourth month of coverage at no cost.

This bill, referred to as the Cruz bill for its Senate sponsor, Ted Cruz (R-TX), would help not only people who maintain or add coverage, but those who can’t afford COBRA or nongroup premiums. They negotiate prices with their providers. If they can open and fund a Health Savings Account, any discounts that they negotiate with providers are magnified by tax savings.

Permanent Decoupling. This proposal has surfaced in various bills for more than a decade. Working seniors {employees age 65 or older) face discrimination if they’re enrolled in an employer’s Health Savings Account program and are collecting Social Security benefits. Under current law, people enrolled in any Part of Medicare aren’t eligible to make or receive a contribution to a Health Savings Account. Under administrative rules that govern Medicare, anyone age 65 or older who collects Social Security benefits is automatically enrolled in Part A (hospital insurance). 

It’s not possible to collect Social Security benefits and not enroll in Part A. These working seniors – most of them lower-income, since most are collecting Social Security benefits in most cases before they accrue the maximum monthly benefit by delaying Social Security until age 70 – lose benefits that working seniors enrolled in any other medical coverage don’t.

Imagine two 67-year-old co-workers. They’re both covered on the company’s HSA-qualified plan. 

One’s a customer-service manager earning $75,000 annually. She delays filing for her Social Security benefits to increase the monthly benefit that she’ll collect when she collects. She receives a $1,500 contribution from the company to offset half of her $3,000 deductible. And she can reduce her taxable income by an additional $6,700, saving about $2,200 in taxes. The employer contribution and her tax savings more than pay her deductible responsibility.

Her co-worker provides support for the customer-service team. He earns $27,000 annually. He receives Social Security benefits, which means that he’s enrolled in Medicare Part A. He can’t accept the employer contribution, nor can he defer any of his income into a Health Savings Account. He’s responsible for his entire $3,000 deductible with no offset.

This proposal would allow anyone enrolled in Part A to remain eligible to fund a Health Savings Account. A similar provision passed the House in 2018, only to die in the Senate. More recently, Reps. Ami Bera (D-CA), a physician, and Jason Smith (R-MO) and a group of colleagues on both sides of the aisle have introduced legislation in the 116th (current) Congress.

The Bottom Line

It remains to be seen whether the Senate GOP, Senate Democrats, and the White House can negotiate major provisions in a bill – including a $2 trillion gap between what each party wants to spend – in just over a week, especially given the fissures in the Senate Republican ranks. Much congressional business gets done quickly when members of Congress smell the jet fumes from the planes that will take them back to their districts or vacation homes for a month’s respite from the pressure and humidity of Capitol Hill.

This bill – probably the last major piece of legislation before the November election – promises to test the power of those jet fumes to bring the parties together.

I'm director of strategy and compliance at Benefit Strategies, LLC, a provider of Health Savings Accounts and other tax-advantaged benefits. You can read my biweekly Health Savings Account GPS blog and subscribe by clicking here and my regular HSA Monday Mythbuster and occasional Healthcare Update column published on LinkedIn. I also founded your Health Savings Academy, which delivers Health Savings Account education to financial, retirement, and benefits advisors; employers; and account owners. My book, HSAs: The Tax-Perfect Retirement Account, is the definitive guide to navigating the intersection of Health Savings Accounts, Medicare, and retirement planning. It's available in book and e-book forms from Amazon.

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