8 Changes to HSAs in the One Big Beautiful Bill Add up for Retirement Savers

Health Savings accounts (HSAs) are going to be more accessible and useful to those age 55 and over if proposed changes included in the One, Big, Beautiful Bill Act survive the reconciliation process and are signed into law.

HSAs can help you build a nest egg to pay for medical expenses in retirement, including Medicare premiums and co-payments. However, the prevailing rules prohibit participation after you enroll in Medicare and are confusing for those who have an HSA and while they are preparing to retire.

Present HSA rules limit contributions when close to retirement

Currently, HSA contributions, including those made by an employer, are prohibited when you are covered by a "disallowed" insurance plans, including Medicare Part A. Workers can still enroll in HSA-eligible workplace plan and use funds already in their HSAs for eligible expenses; they just can’t make any additional contributes once they are enrolled in Medicare.

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Then, you face the tricky period when you have an HSA and are preparing to enroll in Medicare. There is a six-month lookback period, but not before the month of reaching age 65, when enrolling in Medicare after age 65.

A best practice for workers is to stop contributing to their HSA six months before the month they apply for Medicare to avoid penalties. Be aware that the month of your application is what is used to calculate the six-month lookback, not the month you wish the benefits to begin.

You must satisfy the following four requirements to be HSA-eligible in 2025:

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

This would change under the One, Big Beautiful Bill. Most importantly, enrollment in Medicare Part A would no longer disqualify you from contributing to an HSA.

Importance of repealing the Medicare Part A enrollment prohibition

Medicare eligibility kicks in at age 65. At that point, most people have to decide whether to enroll in Medicare Parts A and B or a Medicare Advantage plan. If you have credible coverage from an employer, you can delay enrollment without paying a late enrollment penalty when/if you enroll later. However, If you claimed your Social Security benefits before age 65, you have created a conflict if you enrolled in an HDHP plan through your employer.

If you are receiving Social Security benefits when you turn 65, you will be automatically enrolled in Medicare Part A and Part B. If you have credible employer coverage, you can waive Part B coverage penalty-free and use your Medicare Part A coverage as secondary coverage; you can't disenroll from Part A. If your employer provided coverage is an HDHP, you'd be able to keep your coverage, but you will no longer be eligible to make or receive contributions to your HSA.

The only way to opt out of this would be to rescind your Social Security election within 12 months and pay back all benefits received to date. You may or may not be aware that you have the option to stop and restart your Social Security benefits. There are several reasons why you may want to revisit your decision to file for benefits; you'd also be able to increase your monthly benefit if you claimed your benefits before your full retirement age (FRA).

1. Proposed change: If the repeal is implemented, anyone with an HDHP plan can continue to make contributions after enrolling, voluntarily or automatically, in Medicare Part A. This also means that employees who have an HDHP plan can claim their Social Security benefits before age 65 without jeopardizing their HSA eligibility.

Changes to contribution limits and new spousal contribution and catch-up rules

There are more favorable provisions in the legislation that would raise the contribution limits for some workers and give married couples some flexibility when making catch-up contributions.

Contribution limits. In 2025, annual HSA contribution limits are $4,300 for self-only coverage and $8,550 for family coverage, and HSA contribution limits are indexed every year for inflation. Employees making under certain income thresholds would be allowed to save more.

2. Proposed change: Higher contribution limits based on income. The higher contribution limit would allow individuals who make less than $75,000 annually to contribute an additional $4,300 every year to their HSA. Families who make less than $150,000 may contribute an additional $8,550 each year to their account; the additional contribution limits would be indexed for inflation.

The additional amounts would be phased out for individuals making $100,000 annually and $200,000 for families.

Catch-up contributions. Now, if both spouses are HSA-eligible and age 55 or older, they must open separate HSA accounts to make their respective “catch-up” contributions of $500 or an extra $1,000 annually.

3. Proposed change: New rule would allow both spouses to consolidate their catch-up contributions and deposit them into one account. Both spouses still must be HSA-eligible.

Restriction when one spouse has a Flexible Spending Account (FSA). An employee is not eligible for an HSA if their spouse is enrolled in an FSA.

4. Proposed change: Contributions permitted if spouse has a health flexible spending arrangement. Current Law: Under current law, this provision would allow an individual to be eligible for an HSA even if their spouse is enrolled in an FSA.

Allowing HSA account holders to use more healthcare services and providers

Current rule disallowing use of on-site employer health clinics. Employees who utilize discounted health care services at a clinic at their worksite can not contribute to an HSA. The IRS views such services as a significant medical benefit, therefore incompatible with HSAs.

5. Proposed change: Employees who make use of the discounted health care services at a health clinic at their worksite may still contribute to an HSA.

Current rule disallowing membership in a DPC. Currently, membership in a direct primary care (DPC) would disallow you from having an HSA. These plans are considered a "separate and additional form of health insurance coverage" that is incompatible with HSAs. A DPC practice typically charges a patient a flat monthly or annual fee in exchange for access to a range of primary care and medical administrative services.

6. Proposed change: The new law would allow individuals to maintain HSA-eligibility if they have a direct primary care (DPC) membership of up to $150 per month.

The new law also allows HSA funds to pay for DPC services. However, HSA distributions for DPC services cannot exceed $150 per month for individuals or $300 per month for family arrangements. These amounts would be adjusted annually for inflation.

New expenses are eligible for HSA reimbursement

The definition of eligible expenses has been expanded to cover certain fitness expenses and also would allow some expenses incurred before an HSA is established to be eligible for reimbursement.

Current rule: Sports and fitness expenses, such as fitness facility membership fees, are not treated as HSA-qualified medical expenses.

7. Proposed change allowing certain fitness expenses: This provision would expand the definition of qualified medical expenses for HSAs to allow workers to use their HSAs for physical fitness memberships and instructional physical activity.

Individuals would be allowed up to $500 per year, and families would have a limit of $1,000 per year, with up to one-twelfth of such expenses allowed per month.

Current limit on eligible expenses: HSA funds can only be used for qualified medical expenses (QME) after the HSA is established.

8. Proposed change: The new definition would allow individuals to use HSA funds for medical services incurred within 60 days before the establishment of an account. These expenses would now be treated as an eligible QME.

HSAs can help pay your medical expenses in retirement

HSAs are getting more attention as Gen Xers move into pre-retirement and lack the employee benefits, such as pensions and employer-provided health care that previous generations took into retirement. The attention is well-deserved as HSAs can be a powerful wealth-building tool; think of it as a medical IRA. Why? Because the contributions are tax-advantaged and the distributions from a HSA are tax-free when used for qualified medical expenses.

After 65, the rules are even more generous. You can take distributions for any reason without paying a penalty. The 20% penalty for non-medical expenses imposed before age 65 goes away. If you use the money for something other than QMEs, you only pay income taxes.

The favorable changes proposed in the One, Big, Beautiful Bill are not guaranteed to come to fruition. The deficit spending caused by the bill could trigger mandatory cuts to Medicare, amounting to roughly $500 billion from 2026 to 2034. And it remains to be seen which provisions of the bill will survive the reconciliation process; what the final bill will look like is still uncertain.

If you'd like to know more about changes included in the legislation, read Four Changes to Medicare in the One Big Beautiful Bill Act.

Related Content

• Four Changes to Medicare in the One Big Beautiful Bill Act
• How Your HSA Can Reimburse You for Medicare Premiums and Expenses
• Non-Eligible HSA Expenses: When a Doctor’s Note Isn’t Enough