S-3362-119
Read twice and referred to the Committee on Finance.
Sponsored by Rand Paul (R-KY)
What it does
This bill would make two major changes to federal health policy. First, it would significantly raise the annual contribution limits for Health Savings Accounts (HSAs) — tying them to the higher 401(k) contribution limits — and remove the requirement that account holders be enrolled in a high-deductible health plan. It would also expand what HSA funds can be spent on (vitamins, supplements, gym memberships, fitness trackers, direct primary care arrangements), allow HSA funds to roll over to children or parents upon death, allow retroactive use of funds for expenses incurred before the account was opened, and give HSAs the same bankruptcy protections as retirement accounts. Second, it would allow new entities called "health marketplace pools" to be treated as employers under federal law, enabling them to offer group health insurance to their members — including individuals and small businesses — across state lines.
Who benefits
Higher-income individuals who can afford to maximize HSA contributions and would gain the largest tax deduction benefit. Self-employed individuals and gig workers who currently lack access to employer-sponsored group health insurance. Small business owners and their employees who could join health marketplace pools to access group insurance rates. People who use direct primary care arrangements, vitamins, supplements, gym memberships, or fitness trackers and want to pay for them pre-tax. Families who want to pass HSA balances to children or parents. People who incur medical expenses before formally opening an HSA. Individuals filing for bankruptcy who want to protect HSA assets. Health insurance issuers and direct primary care providers who would gain new customers.
Who is hurt
Lower-income individuals who cannot afford to contribute to HSAs and would not benefit from the expanded deductions. Insurers and state regulators in states with stricter coverage mandates, whose rules could be preempted by federally recognized health marketplace pools. Consumers who rely on state-level insurance protections (e.g., mandated benefits) that marketplace pools may not be required to provide. Traditional insurance markets and ACA marketplace insurers who could lose healthier enrollees to marketplace pools, potentially worsening risk pools. State governments that lose regulatory authority over group health plans offered through these pools. Taxpayers broadly, who would bear the cost of the expanded tax deductions through reduced federal revenue.
Supporters argue
Supporters argue that current HSA rules are too restrictive — tying accounts to high-deductible plans and capping contributions well below retirement account limits — leaving millions of Americans without a meaningful way to save for healthcare costs tax-free. They contend that removing the high-deductible plan requirement and raising contribution limits to 401(k) levels would give individuals, especially the self-employed and gig workers, the same tax advantages that employer-sponsored plan participants already enjoy. On the marketplace pool provisions, supporters argue that allowing individuals and small businesses to pool together across association lines would increase purchasing power, lower premiums through larger risk pools, and expand access to group coverage for the roughly 28 million Americans who remain uninsured.
Opponents argue
Opponents argue that HSA expansion disproportionately benefits wealthy, healthy individuals who can afford to maximize contributions, while doing little for lower-income Americans who lack the disposable income to fund such accounts. They contend that allowing HSA funds to cover wellness expenses like gym memberships and supplements — which have limited clinical evidence as medical interventions — erodes the medical purpose of the tax preference and reduces federal revenue without clear health outcomes. On the marketplace pools, critics argue that allowing these entities to operate as employers under ERISA could effectively preempt state insurance mandates, enabling the sale of bare-bones plans that attract healthy enrollees and destabilize ACA-compliant markets, raising premiums for sicker individuals who remain in regulated pools.
Constitutional context
The bill's tax provisions fall under Congress's broad taxing and spending authority (Art. I, §8, cl. 1), which permits tax deductions and exclusions without significant constitutional constraint. The health marketplace pool provisions implicate the Commerce Clause and ERISA preemption doctrine — by deeming these pools "employers" under federal law, the bill would allow them to offer plans that preempt state insurance regulations, a structure the Supreme Court has previously examined in the context of association health plans.
Checks and balances
Congress gains authority to define new categories of tax-preferred accounts and federally recognized insurance pools; the IRS and Department of Labor would implement and enforce the new rules, while state insurance regulators would lose some oversight authority over plans offered through health marketplace pools.
Historical precedent
The Department of Labor's 2018 Association Health Plan rule attempted a similar expansion of group coverage access through association-based pools, but was struck down by a federal district court in 2019 for improperly redefining "employer" under ERISA; this bill would accomplish the same goal through direct statutory amendment rather than agency rulemaking.