S. 4353 — Health Savings Account Expansion Act

This section revises Health Savings Account (HSA) eligibility criteria under IRC §223(c)(1)(A) to provide that an individual is eligible to contribute to an HSA if, as of the first day of the month, the individual either (i) is covered by a high-deductible health plan (HDHP) with no disqualifying coverage (previously the sole criterion) or (ii) is covered under a government-sponsored health program—including Medicare (parts A, B, or C), Medicaid, Children's Health Insurance Program (CHIP) or a qualified CHIP look-alike program, or Federal Employees Health Benefits (FEHB) program under 5 U.S.C. ch. 89—or participates in a health care sharing ministry. (HSAs allow tax-favored contributions and earnings for qualified medical expenses.) The changes apply to taxable years beginning after December 31, 2026.

This section eliminates the annual out-of-pocket expense limitation from the definition of a high deductible health plan (HDHP) under the tax code. (As background, HDHPs are the only health plans that qualify individuals for tax-favored contributions to Health Savings Accounts (HSAs) to pay for qualified medical expenses; thus, after 2026, HDHPs need only a minimum annual deductible—at least $1,600 for self-only coverage and $3,200 for family coverage in 2024, as annually adjusted for inflation—to qualify.) The section makes conforming amendments to strike related subparagraphs and update cross-references in IRC §223(c)(2) and applies to taxable years beginning after December 31, 2026.

This section revises the exceptions to the general exclusion of health insurance premiums from the definition of qualified medical expenses for health savings accounts (HSAs) by adding premiums for a health plan or health insurance coverage described in IRC §223(c)(1)(A) (i.e., a high deductible health plan). It further includes as qualified medical expenses (1) periodic fees paid to a physician for a defined set of medical services or for the right to receive medical services on an as-needed basis and (2) amounts prepaid for medical services designed to screen for, diagnose, cure, mitigate, treat, or prevent disease and promote wellness. The amendments apply to taxable years beginning after December 31, 2026.

This section specifies that a health care sharing ministry—as defined in IRC §5000A(d)(2)(B)(ii) without regard to subclause (IV) (i.e., excluding the requirement of continuous existence since December 31, 1999)—is not treated as a health plan or insurance for purposes of the Internal Revenue Code, including under the Health Savings Accounts (HSA) provisions of §223. (Thus, participation in such a ministry will not disqualify individuals from HSA eligibility.) The provision applies to taxable years beginning after December 31, 2026.

This section expands the definition of medical care under tax law to include membership fees, sharing of medical expenses among members, and administrative fees of a health care sharing ministry (HCSM, i.e., a tax-exempt nonprofit organization where members pool funds to share eligible medical costs). The provision applies to taxable years beginning after December 31, 2026. (Thus, HCSM members may deduct these amounts as itemized medical expenses on Schedule A, subject to the 7.5% of adjusted gross income floor.)

This section modifies the definition of qualified medical expenses for health savings accounts (HSAs) and Archer medical savings accounts to specify that amounts paid for medicine or a drug qualify only if the medicine or drug is a prescribed drug (determined without regard to whether available without a prescription) or insulin, for taxable years beginning after December 31, 2026. For HSAs, the section strikes subparagraph (C) of 26 U.S.C. § 223(d)(2), which deems menstrual care products qualified medical expenses. (Thus, menstrual care products cease to qualify for tax-free reimbursement from HSAs after 2026.)