Should People Be Able to Use Health Savings Account Funds for Expenses While on Family Leave? (H.R. 2163)

What is H.R. 2163?

(Updated October 24, 2019)

This bill — the Freedom for Families Act — would allow individuals to use health savings accounts (HSAs) to cover expenses while on leave following a birth, adoption or family member's illness. Under this bill, people who are qualified for federally-mandated leave, unpaid leave, or who are currently unemployed could use HSA funds to pay for their leave.

To help more people access HSAs and save more money in them, this bill would expand HSA eligibility by removing the requirement of enrollment in a high-deductible health plan to enroll in HSAs, and increase the annual limit on contributions to these accounts to $9,000 for individuals and $18,000 for joint filers. Additionally, it would allow employers to make pre-tax contributions into employee accounts for the purposes of paid leave. 

Argument in favor

While workers should be able to take leave from their jobs for births, adoptions, or family members’ illness, paid family leave shouldn’t rely on new taxes or federal mandates that burden employers. Since families already use health savings accounts (HSAs) to save for healthcare expenses, it makes sense to broaden access to HSAs and allow funds to be used as a saving mechanism for paid leave.

Argument opposed

Health savings accounts (HSAs), while useful for middle- and higher-income earners, aren’t particularly useful for lower-income earners (who are also the most likely to not have paid family leave policies at their employers) as they have less money to save in an HSA. The federal government should fund a paid leave program of its own instead of broadening the uses of HSAs.

Impact

Individuals; families; workers taking leave after a birth, adoption, or family member’s illness; employers; and HSAs.

Cost of H.R. 2163

A CBO cost estimate is unavailable.

Additional Info

In-Depth: House Freedom Caucus chairman Rep. Andy Biggs (R-AZ) introduced this bill to allow families to use funds in health savings accounts (HSAs) to pay expenses during a period of leave for a child’s birth or adoption or a family illness: 

“Families already use health savings accounts to save for healthcare expenses. There is no reason why families should not have the freedom to access those funds to pay expenses during family leave for a child’s birth, adoption, or a family illness. This proposal provides financial security for families during family leave without new taxes or new federal burdens on employers. I encourage my colleagues to join me in supporting this free-market solution to empower American families to control their own savings and leave.”

Rep. Biggs’ intention is for this proposal to serve as an alternative to federally-mandated paid family leave. He expounded on this idea in a letter to his Congressional colleagues seeking cosponsors for this legislation: 

“There is no reason these funds should not be available for families that have HSAs. Whether you qualify for leave under the Family and Medical Leave Act, take other unpaid leave offered by an employer, or are not currently employed, you will be able to use any available funds in your HSA to pay expenses while caring for a new child or a sick loved one. The portability of HSAs will allow Americans the freedom to carry funds for family leave from one job to the next and accumulate funds over multiple years. By removing the requirement of a high deductible health plan, this bill makes HSAs, and savings for family leave, available to all Americans. This bill also raises the contribution limits on HSAs so that individuals, families, and employers can contribute meaningful amounts each year… This bill will empower employers to offer funds for paid family leave to their employees without onerous, one-size-fits-all federal mandates.  With most current proposals for paid family leave requiring higher taxes, federal mandates, or borrowing from Social Security, this bill offers a unique option for families. The solution to paid family leave is to give families a variety of options and HSAs should be among those options. ”

In the same letter, Rep. Biggs also argued that this proposal has seven key advantages over other paid family leave proposals: 

1. No minimum period of employment to qualify
2. No application process – funds immediately available for use
3. No borrowing against Social Security or other retirement funds
4. No requirement to pay back funds that are spent
5. Fully voluntary
6. Fully customizable to the needs of families and employers
7. The individual, family members, or employers may contribute funds

Americans for Tax Reform (ATR) supports this bill. It argues that using HSA funds to pay for leave has several advantages, including portability (individuals can carry HSA funds from one job to another without losing accrued benefits); lack of a minimum employment period for using such funds; customizability; ability to accept contributions from the account holder, family members, and businesses; and non-interference with retirement. With these and other benefits in mind, ATR concludes: 

“Instead of embracing a top-down, one-size-fits-all approach to paid family leave that would impose onerous costs and federal mandates on American businesses, the Freedom for Families Act empowers families to control their savings and leave.”

Jonathan Bydlak, founder and president of the Coalition to Reduce Spending, argues that HSAs are an “essential piece” of solving the United States’ healthcare crisis: 

“HSAs are an essential piece of the puzzle that is solving the country's growing health care crisis and are a foil to the government-centric efforts like Medicare for All or even some Republican-led plans that would create new entitlements for paid family leave. By contrast, expanding HSAs allows people to save for what they want, such as Rep. Andy Biggs' recently filed Freedom for Families Act, without burdening an already strained system with more mandates.”

The American Enterprise Institute (AEI) has a favorable view of the idea of increasing HSA flexibility, but notes that HSAs are “tilted towards higher income employees.” The high-income skew of HSAs is evidenced by the fact that, according to a survey by the Kaiser Family Foundation and the L.A. Times, fewer than 22% of those with incomes under $75,000 have more than $2,000 in an HSA. 

With this in mind, the AEI theorizes that this bill would help most middle- and upper-income families self-finance large portions of their paid parental leaves, but wouldn’t necessarily be of use to lower-income households who might not be able to save. Thus, AEI concludes that it’s unclear how many low-income families would benefit from this bill. 

To make more flexible HSA policies more useful to lower-income families, AEI proposes a companion policy helping working class families get enough money to save in HSAs. To this point, in a 2018 AEI-Brookings report, Douglas Holtz-Eakin and Ben Gitis proposed savings accounts funded by not only employees, but also employers and the government. These accounts could be tied to the employee, portable, and give low-wage workers some funds to meet their medical and parental needs.

President Trump’s 2020 budget proposal calls for six weeks of paid parental leave. Additionally, a handful of states already have state laws requiring paid family leave programs.

This legislation has 20 Republican cosponsors. It’s supported by Americans for Tax Reform (ATR), Independent Women’s Voice (IWV)

Of Note: Used alongside low-premium, high-deductible health insurance plans, health savings accounts (HSAs) can allow families to spend their own money on their own health needs. Since their creation 16 years ago, HSAs have become a popular vehicle for promoting patient choice. Today, about 25 million American families and individuals use HSAs. 

Currently, the U.S. is the only industrialized nation without a national paid family leave program. Only 17% of workers overall have paid leave from their employers; and only 6% of low-income workers have paid family leave benefits.

Media:

• Sponsoring Rep. Andy Biggs (R-AZ) Press Release
  
• Sponsoring Rep. Andy Biggs (R-AZ) Dear Colleague Letter
  
• The Hill
  
• Americans for Tax Reform (ATR) (In Favor)
  
• Independent Women’s Voice (In Favor)
  
• AEI (Mixed)
  
• The Heartland Institute
  
• AEI-Brookings Working Group Report (Context)
  
• National Partnership for Women & Families (Context)
  
• Vox (Context)