Breaking down new HSA and benefits provisions in the megabill

If you’ve been following the recent reconciliation legislation, you may be wondering what health benefits related items made it into the final bill. Just in time for the 4th of July holiday, Congress passed and the President signed the megabill or H.R.-1 One Big Beautiful Bill Act (the Act).

As a member of the HealthEquity Public Policy and Government Affairs team, I’ve been following the developments closely. Among other things, the Act advances expansion of Healthcare Savings Accounts (HSAs). (For a list of HSA-related items that did not make it into the final Act, see this article from KFF.)

Please note, the information here is intended to help employers understand the potential effects of the Act on employee benefit plans. This summary is not and should not be construed as legal or tax advice.

Key health and welfare benefits-related provisions in the megabill

While the Act included a host of economic and policy provisions, there are a number of items related to health and welfare benefits. This includes permanent extension of telehealth and remote care service relief, direct primary care (DPC) arrangements, approval for two Affordable Care Act (ACA) plans as HSA-compatible high-deductible health plans (HDHPs), employer payments of student loans, bicycle commuting reimbursement, and a maximum contribution increase for Dependent Care Assistance Program (DCAP). Here’s a closer look:

1. Telehealth safe harbor for HSA-qualifying HDHPs

Our government affairs team has been covering telehealth regulations for years. And there has been a little bit of ping-ponging around for telemedicine coverage. First dollar telehealth or telemedicine coverage for HDHPs first appeared in the 2020 CARES Act to support remote care during the COVID-19 emergency. I’m pleased to say that retroactive for plan years beginning January 1, 2025, there is an extension of the authorization for telehealth to be covered under an HDHP prior to the deductible being met. Making this first dollar telehealth coverage safe harbor permanent means no more guessing if it’ll be extended—it’s here to stay.

In short, the Act retroactively makes permanent the pandemic-era provision allowing HSA-qualified HDHPs to cover telemedicine and other remote care service expenses before the deductible is met with no effect to a participant’s ability to continue to contribute to their HSA.

2. Direct primary care (DPC) payments via HSA funds

Starting in 2026, DPC arrangements will no longer disqualify individuals from contributing to an HSA as long as monthly fees don’t exceed $150 for individual coverage or $300 for family coverage (amounts indexed).¹ The Act allows for these fees to be paid with HSA funds.

Essentially, the Act establishes that, within certain limits, DPC service arrangements are not disqualifying coverage for HSA-eligibility.

Now, here’s where the exceptions come in. These primary medical care services don’t include procedures that require the use of general anesthesia, prescription drugs (other than vaccines), and laboratory services not typically administered in an ambulatory primary care setting.

3. Clarification on certain ACA plans as HSA-compatible

Effective on January 1, 2026, the Act treats Bronze² and Catastrophic³ plans available through the ACA Marketplace as HSA-compatible HDHPs. Note that ACA plans are often individual plans and are not necessarily associated with an employer. That said, this change is noteworthy for any employees who are enrolled in either the Bronze or Catastrophic plan—they now have access to HSAs.

4. Employer payments of student loans

Does your organization provide employees with financial education assistance? Then this provision is important to note. Beginning January 1, 2026, the Act permanently extends the $5,250 exclusion from income for employer-provided education assistance (originally scheduled to sunset December 31, 2025), indexed annually for inflation in the case of taxable years after 2026. Scroll down for ways you can consider acting on this permanent extension.

5. Bicycle commuting reimbursement

If your company offers commuter benefits, effective January 1, 2026, the Act makes a significant change for reimbursement for bicycle commuting expenses.

Prior to enactment of the previous Trump Administration’s Tax Cuts and Jobs Act of 2017 (TCJA), up to $20/month in qualified bicycle commuting reimbursements could be excluded from an employee’s gross income. This was suspended by the TCJA for 2018 through 2025 such that any reimbursement of this expense would be taxable. However, the taxable reimbursement is currently deductible by employers.

The Act permanently eliminates this as a qualified transportation fringe benefit (i.e., taxable to employees) and makes it non-deductible for employers.

6. Dependent Care Assistance Program (DCAP) annual maximum contribution increase

Whether you refer to the account as DCAP or Dependent Care Flexible Spending Account (DCFSA), starting on January 1, 2026, the Act increases the Internal Revenue Code § 129 maximum exclusion amount to $7,500 from the current $5,000 ($3,750 for married employees filing separately). This is a big jump up, especially considering this account contribution maximum – except for a temporary one-time increase in 2021—hasn’t enjoyed an increase since 1986.

Rest assured, HealthEquity will update its DCAP administrative system to make this increased maximum available for applicable client plans. Employers who offer a DCAP should consider reviewing and revising your educational materials before the new year rolls around. It’s important to notify your employees of this substantial increase.

What new HSA provisions may mean for benefits professionals

For anyone working in the employee benefits space, these updates carry significant implications, particularly within compliance strategies and employee education efforts.

• Building telehealth integration into your long-term strategy. With this move, legislators are indicating that the telehealth safe harbor is here for good. No more short-term extensions—this is permanent! Benefits teams should actively market this feature to employees, emphasizing not only convenience but also cost-effectiveness when paired with HSAs.

• Taking advantage of enhanced benefits flexibility. HR teams are able to offer more tailored options, like the DPC coverage, that appeal to employees seeking high-quality yet affordable care. For employees who may love the idea of paying a flat fee for their primary care, they’ll now (with some exceptions) be able to use HSA funds for it. When this rolls out in 2026, your employees will likely appreciate education from you on the exceptions on anesthesia and prescription drugs. And, as the student loan assistance is permanent, if you don’t already offer this benefit, consider including student loan support in your benefits portfolio to appeal to younger, debt-burdened employees.

• Communicating changes to employees. There’s a lot of changes in the Act, so be sure to share the changes with your organization. For example, employees who use dependent care benefits will want to know about the higher maximum contribution level—and the subsequent financial relief for families. While dependent care accounts got a boost, some other programs took a hit. Bicycle commuting expenses are now taxable for employees and no longer deductible for employers. Tell your employees about this change to the taxation rules to avoid confusion.

Next steps for benefits professionals

The Act represents a big shift in healthcare policy. I strongly encourage you to consult legal or benefits counsel for all guidance on how the actions apply in your specific circumstances.

Lean on HealthEquity for ways to help educate your employees on how these updates may impact their existing healthcare options. No matter what, you can count on me and our government affairs team to stay engaged as the Act is implemented. Subscribe to Remark Blog so you don’t miss a beat.