Eight HSA Changes In The ‘One Big Beautiful Bill’ Could Benefit Retirement Savers

If passed into law, the proposed reforms to Health Savings Accounts (HSAs) in the One Big Beautiful Bill Act could make HSAs significantly more accessible and beneficial for individuals aged 55 and older.

HSAs offer a tax-advantaged way to save for medical expenses in retirement—including Medicare premiums and out-of-pocket costs. However, under current law, these accounts become more difficult to use as individuals approach Medicare eligibility, creating confusion and limiting potential savings.

Current HSA Restrictions Near Retirement

Today’s rules prohibit HSA contributions once you’re enrolled in Medicare—particularly Medicare Part A. While you can still use existing HSA funds for eligible expenses, you can no longer make contributions (including employer contributions).

Additionally, a six-month Medicare lookback period further complicates the transition. To avoid penalties, financial advisors recommend stopping HSA contributions six months before applying for Medicare. Importantly, this lookback is calculated from the month you apply for benefits, not the month you want coverage to begin.

To contribute to an HSA in 2025, you must meet these four criteria:

• Be covered by a high-deductible health plan (HDHP)
• Have no other disqualifying coverage
• Not be enrolled in any part of Medicare
• Not be claimed as a dependent on another’s tax return

What The Bill Would Change

 1. Eliminate Medicare Part A Disqualification for HSA Contributions

The bill proposes allowing individuals enrolled in Medicare Part A to continue contributing to their HSA. This is especially helpful for those who:

• Claim Social Security before 65 (which automatically enrolls them in Medicare Part A)
• Have HDHP coverage through work

Currently, opting out of Medicare Part A requires withdrawing your Social Security benefits—a rare and burdensome workaround. If the new rule passes, employees in HDHP plans could claim Social Security early without losing HSA eligibility.

2. Increase HSA Contribution Limits For Lower-Income Workers

Starting in 2025, base HSA contribution limits are:

• $4,300 (individual)
• $8,550 (family)

The bill introduces income-based contribution boosts:

• Individuals earning < $75,000: Extra $4,300 annually
• Families earning < $150,000: Extra $8,550 annually

These amounts phase out for incomes of $100,000 (individuals) and $200,000 (families) and will be adjusted for inflation annually.

3. Allow Married Couples To Consolidate Catch-Up Contributions

Currently, spouses aged 55+ must have separate HSAs to make individual catch-up contributions. The new rule would allow both spouses to deposit their catch-up amounts into one account, simplifying contributions—provided both remain HSA-eligible.

4. Permit Contributions Even If A Spouse Has An FSA

Under current law, if one spouse has a flexible spending account (FSA), the other spouse becomes ineligible to contribute to an HSA. The bill would change that: having a spouse with an FSA would no longer disqualify you from contributing to an HSA, easing restrictions for dual-income families with mixed benefit options.

Expanding Access To Healthcare Services and Providers

5. Allow Use Of  Worksite Clinics Without Losing HSA Eligibility

Right now, using discounted services at an employer health clinic can disqualify you from HSA contributions, as the IRS views this as “significant medical coverage.” The bill would allow employees to use on-site employer clinics and still contribute to their HSA.

6. Permit HSA Eligibility For Direct Primary Care (DPC) Members

Currently, joining a Direct Primary Care (DPC) practice—a flat-fee model for primary care—disqualifies you from contributing to an HSA.

The new rule would:

• Let individuals remain HSA-eligible with a DPC membership (up to $150/month)
• Allow HSA funds to pay DPC fees, capped at $150/month (individuals) or $300/month (families), with inflation adjustments.

Broadening Reimbursement Options

7. Cover Certain Fitness And Instructional Physical Activity Costs

HSAs currently can’t be used for gym memberships or fitness classes. The bill would redefine “qualified medical expenses” to include:

• Physical fitness memberships
• Instructional physical activity programs

This provision aligns with the growing focus on preventive care and wellness in retirement.

8. Allow Reimbursement for Pre-Account Medical Expenses

Presently, only expenses incurred after an HSA is established can be reimbursed. The new rule would allow individuals to use HSA funds for medical services received up to 60 days before opening their account, as long as those expenses would otherwise be qualified.

The Bigger Picture: HSAs as Retirement Tools

HSAs are gaining traction—especially among Gen Xers—who often lack traditional pensions or retiree health coverage. With triple tax advantages (pre-tax contributions, tax-free growth, tax-free qualified withdrawals), HSAs function like a “medical IRA.” After age 65, HSA withdrawals for non-medical expenses no longer incur a penalty—only regular income tax applies—further enhancing their appeal.

Final Thoughts

While these proposed changes could significantly enhance HSA flexibility and value, the bill is still subject to revision. Projected deficit increases—potentially leading to $500 billion in Medicare cuts from 2026 to 2034—may alter or eliminate some provisions during reconciliation. Stay tuned as the legislative process unfolds—and consider speaking with a financial advisor if you’re approaching Medicare and want to optimize your HSA strategy.

 

Source: Kiplinger