Last week, a bipartisan group of lawmakers introduced the Health Out-of-Pocket Expense (HOPE) Act (H.R. 9394), a bill aiming to create a new tax-advantaged savings account for medical expenses. This new account would be available to anyone with qualifying health coverage and provide a unique way to save for future health costs.

Key Features of the HOPE Account

Contribution Limits and Eligibility:

• The HOPE Act allows individuals to contribute up to $4,000 annually ($8,000 for families). Qualifying health coverage includes minimum essential coverage, such as plans offered on the commercial market, Medicare, Medicaid, or Indian Health Service.
• Employers may also contribute to these accounts, up to 50% of the annual limit. Employer contributions would be excluded from the employee's adjusted gross income if their income is $100,000 or less ($200,000 for married couples filing jointly).

 

Tax Treatment of HOPE Accounts:

• Individual contributions to HOPE accounts are not deductible; however, distributions used to pay for qualified medical expenses are excluded from the beneficiary's gross income. This makes the HOPE account similar to a Roth savings account, which allows for non-deductible contributions and tax-free distributions for qualified purposes.

 

Interaction with Other Health Accounts:

• Contributions to other tax-advantaged health accounts like Health FSAs, HSAs, certain HRAs, and Archer MSAs reduce the amount that can be contributed to a HOPE account in the same year.

 

How HOPE Accounts Differ from Existing Options

 

Health FSAs (Flexible Spending Arrangements):

• Health FSAs allow for contributions by employees and employers. For 2024, the maximum employee contribution is $3,200. Contributions are tax-free, but unused funds are generally forfeited at the end of the year unless an exception applies.

HSAs (Health Savings Accounts):

• HSAs are available only to those enrolled in high-deductible health plans. For 2024, the annual contribution limit is $4,150 for self-only coverage and $8,300 for family coverage. Contributions are tax-free, portable, and remain in the account until used.

HRAs (Health Reimbursement Arrangements):

• HRAs are funded solely by employers to reimburse employees for medical expenses. They are tax-free, and balances can carry over to future periods but do not move with an employee who changes jobs. The maximum benefit amount for 2024 is $2,100.

Archer MSAs (Medical Savings Accounts):

• Archer MSAs were discontinued in 2007, but they remain available to active participants. Contributions are generally deductible, and distributions for medical expenses are not taxable.

 

The Need for HOPE Accounts

The introduction of HOPE accounts has raised questions about their necessity given the existing options. Representative Jimmy Panetta (D-CA) argues that HOPE accounts would "incentivize Americans to save for future medical expenses not covered by their insurance." Representative Adrian Smith (R-NE) added that these accounts would provide families with "a new tool to protect themselves and their household finances from a surprise illness or injury."

Conclusion

The HOPE Act aims to provide another means for Americans to save for health care expenses, offering flexibility like a Roth savings account. It remains to be seen how this proposed savings option will fit alongside existing accounts like FSAs, HSAs, and HRAs, and whether it will gain the support needed to become law.