HSA & FSA Enhancements in Reconciliation Bill
Great news for those who rely on qualified healthcare spending accounts like HSAs and FSAs, to help with healthcare and dependent daycare expenses! The recently passed H.R.1, 2025 reconciliation bill, otherwise referred to as the “The One Big Beautiful Bill Act”, contains important enhancements affecting both HSAs and FSAs. Importantly, these expansions take affect beginning in 2026, providing plenty of time for affected individuals to plan accordingly for 2026 open enrollment. Here’s what the bill changed for both Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) –
Health Savings Accounts (HSA)
The new law impacts HSAs in three separate and distinct areas.
- Bronze and Catastrophic Affordable Care Act (ACA) Individual health insurance plans – beginning in 2026, individuals enrolled in these plans will be eligible to establish and fund an HSA to assist with out-of-pocket expenses related to health, dental, and vision care. Currently, these particular individual health insurance plans do not meet the IRS definition of an HSA “qualified high deductible health insurance plan” or HDHP. This is important as HSAs offer a very rare “triple tax benefit”, in that contributions to HSAs are tax deductible; the interest/growth on the principal amount grows tax free; and distributions/withdrawals are tax-free if used for qualified expenses. Note: for more information on HSAs, see our past blog – https://smstevensandassociates.com/health-savings-accounts-hsas-summary-overview-2/
- Direct Primary Care (DPC) – also in 2026, membership fees for so called direct primary care (or pre-paid primary healthcare), qualify as HSA eligible expenses. Importantly, the new law also eliminates the disqualification of HSA eligibility for merely participating in a DPC arrangement. The 2026 DPC fees eligible for HSA reimbursement are set at $150/month for individuals; and $300/month for families and will be annually indexed for inflation. Direct Primary Care is a fantastic way to plan and pay for important primary healthcare.
- Telehealth – Under current law, HSA qualified health insurance plans are not allowed to cover otherwise eligible healthcare expenses, other than preventive care, at 100%. In other words, the HDHP deductible has to apply to all but preventive care, leaving covered individuals with the cost of the telehealth consult. The new law allows telehealth expenses to be covered by HSA HDHPs at 100%, starting in 2026. Importantly, this same relief was temporarily granted during and shortly after the COVID-19 pandemic but was eventually removed. Health insurers and employers will need to decide whether to modify their HDHPs to allow this enhanced coverage, so stay tuned for more information.
Flexible Spending Accounts (FSA)
- For the first time in nearly 40 years, the annual Dependent Care FSA (DCFSA) contribution limit is increasing! This limit has been stuck at $5,000 (or $2,500 depending on dependent status and tax filing), for seemingly ever. With the new law, the DCFSA limit for 2026 will be increased to $7,500 for single tax filers and married couples filing jointly, and $3,750 for married individuals filing separately. And with the growing number of working adults caring for aging parents, here’s a reminder that DCFSAs are not only available to pay for childcare costs such as daycare, preschool, and summer day camps, but also care for qualifying adults unable to care for themselves.
While these changes are being announced in the middle of 2025, much work needs to be done by insurers, administrators, and employers to make necessary amendments and related procedural changes. Stay tuned for more information on the impact of these awesome enhancements coming in the fall!
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