Expanded HSA Eligibility: New Opportunities Under the Latest Tax Law

In December, 2025, the IRS issued Notice 2026-5, clarifying significant expansions to Health Savings Accounts (HSAs) under the One Big Beautiful Bill Act. These changes broaden who can contribute to an HSA and how the accounts can be used. For clients, financial advisors, and elder-law professionals, the new rules create practical planning opportunities, while requiring careful attention to timing and coordination.

Three Main Expansions

There are three major changes:

• Permanent Telehealth Safe Harbor: High-deductible health plans (HDHPs) may now permanently cover telehealth and other remote care services before the deductible is satisfied without causing the participant to lose HSA eligibility. This change applies to plan years beginning after December 31, 2024.

• Bronze and Catastrophic Plans Now HSA-Compatible: Beginning January 1, 2026, bronze-level and catastrophic plans are treated as HDHPs for HSA purposes, even if their deductibles or out-of-pocket maximums exceed the traditional statutory limits. The IRS confirmed that these plans do not have to be purchased through an Affordable Care Act Exchange to qualify. This opens HSA eligibility to many individuals who previously could not contribute.

• Direct Primary Care (DPC) Arrangements: Starting in 2026, enrollment in certain direct primary care service arrangements no longer disqualifies an individual from making HSA contributions. In addition, HSA funds may be used tax-free to pay the periodic DPC fees (subject to monthly limits of $150 for self-only coverage or $300 for family coverage).

These changes benefit our clients and their families:

• Expanded eligibility means more people can take advantage of the HSA’s triple tax benefit: deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
• Clients on bronze or catastrophic coverage can now pair that lower-premium insurance with an HSA.
• Individuals who prefer a membership-style primary-care model can maintain HSA eligibility and pay DPC fees directly from the account.
• The permanent telehealth rule removes a long-standing source of uncertainty for people who rely on virtual care.
• Catch-up contributions ($1,000 for those age 55+) remain available, making the accounts especially useful for pre-retirees and older adults building medical reserves.

Advisors should review clients’ current health coverage to identify those who were previously ineligible but may now qualify. Modeling the tax savings from new or increased HSA contributions can be a concrete value-add in planning meetings and can support aging-in-place and long-term care funding strategies.

Important Limitations and Cautions

• Effective Dates Matter: The bronze/catastrophic and DPC expansions apply only for months beginning after December 31, 2025. Clients should not assume the new rules apply to 2025 contributions.
• Disqualifying Coverage:  Disqualifying coverage such as certain Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), or non-HDHP plans can still prevent HSA eligibility. Benefit coordination remains essential.
• DPC Arrangements:  These must stay within the statutory fee limits and must be structured as fixed periodic payments.
• Contribution Limits:  Limits themselves were not increased by these particular changes.
• Record-keeping:  Record-keeping continues to be critical for all HSA distributions, including DPC fees.
• Watch for Developments: Further IRS guidance or refinements are possible; plans should be monitored.

Practical Guidance

Clients and insurance or financial professional advisors should:

• Inventory current health coverage and flag anyone on bronze, catastrophic, or DPC arrangements;

• Confirm whether existing HDHPs already incorporate the permanent telehealth safe harbor;

• Coordinate with benefits brokers, payroll providers, and tax advisors before making mid-year or open-enrollment changes; and

• Update financial and long-term-care projections to reflect potential new HSA contribution capacity.

These expansions make HSAs available to a wider group of people and remove several historical barriers. Used carefully, they can strengthen both current-year tax planning and longer-term medical and aging-in-place reserves. As always, individual circumstances vary. Clients should confirm eligibility with their tax and benefits advisors before changing contributions or coverage. 

Little Noticed Provision in Trump Executive Order Allows Seniors to Opt Out of Medicare

Seniors are now permitted to opt out of Medicare.  A little-noticed section of a longer Executive Order on Medicare issued last November by President Trump directed the Secretary of Health and Human Services (HHS) to “revise current rules or policies to preserve the Social Security retirement insurance benefits of seniors who choose not to receive benefits under Medicare Part A.” (E.O. 13890, Sec. 11). The order took effect on April 3, 2020, but there appear to be no new proposed rules. 

You may wonder, "why?"  During President Obama’s administration, three retired federal employees – among them former Republican House Majority Leader Dick Armey -- sued the federal government because they wanted to drop their Medicare Part A coverage without losing Social Security benefits. They claimed participation in Medicare threatened their coverage under the Federal Employees Health Benefit (FEHB) program.

A U.S. district court judge dismissed the case in March 2011, a decision that was upheld the following year by a three-judge panel of the U.S. Court of Appeals for the District of Columbia, with then-judge Brett Kavanaugh writing for the majority that the federal statute offers the plaintiffs no path to disclaim their legal entitlement to Medicare Part A benefits.  The U.S. Supreme Court declined to review the decision.   

Although there exist no implementing rules, presumably anyone can now drop Medicare coverage without it affecting their Social Security retirement benefit.   John Kraus, one of the plaintiffs in the original suit, explained to ElderLawAnswers that “[t]here isn't any law, statute, or regulation that memorializes in the U.S. Code this linkage of the two programs. It is only found in the Social Security Administration's (SSA) Program Operations Manual System (POMS).”

When asked why he and his fellow plaintiffs wanted to separate from Medicare, Kraus explained that  the reasons

“are several.  The foremost is that one enrolled in Medicare cannot have a High Deductible Health Plan with a Health Savings Account. Secondly, for FEHB participants, their coverage becomes secondary to Medicare, without a premium reduction for FEHB coverage. Third, there is the issue of Medicare solvency, which could be a serious consideration in the near future. Lastly, there is the consideration of reduced choice and availability of health care providers because they are either leaving the Medicare program or not accepting additional Medicare recipients as new patients.”

Judith Stein, executive director of the Center for Medicare Advocacy, contends that allowing people to drop Medicare Part A would only weaken the program.  “We do not support allowing people to opt out of Part A,” Stein told ElderLawAnswers.  “[It’s] not good for Medicare in general, and not allowed by courts – to date.”