The Personalized Care Act of 2025 (S.276) amends Internal Revenue Code section 223 to broaden who can contribute to and use health savings accounts (HSAs). It expands the set of qualifying coverage beyond high-deductible health plans to include group and individual plans, short-term limited-duration plans, Medicare Parts A/B, Medicaid, CHIP and CHIP look-alikes, TRICARE, VA programs, Indian Health Service coverage, federal employee coverage, and participation in health care sharing ministries.
The bill also raises annual contribution caps sharply, authorizes HSA distributions for a wider set of insurance premiums, recognizes subscription-style medical service fees as qualified expenses, treats health care sharing ministry fees as medical expenses, and reduces the penalty for nonqualified HSA distributions.
These changes would transform HSAs from a narrowly targeted tax incentive tied to high-deductible coverage into a broad tax-preferred vehicle for many forms of health coverage and pre-paid care. That raises immediate compliance and design questions for account trustees, employers, insurers, and the IRS — and creates a sizable, permanent tax expenditure with implications for risk pools, premium pricing, and federal revenue.
At a Glance
What It Does
The bill amends IRC §223 to expand HSA eligibility to many government programs, short-term and individual plans, and health care sharing ministries; increases contribution limits to $10,800 (individual) and $29,500 (family) and indexes limits for inflation after 2026; permits HSA funds to pay premiums for the newly eligible coverage; adds periodic provider/subscription fees and health care sharing ministry membership/admin fees to the definition of qualified medical expenses; and lowers the excise penalty on nonqualified distributions from 20% to 10%.
Who It Affects
Holders of HSAs and potential HSA participants who currently are ineligible (Medicare, Medicaid, CHIP enrollees, TRICARE, VA beneficiaries, IHS-covered individuals, federal employees), HSA trustees and administrators, insurers and alternative-care providers (direct primary care, subscription services), health care sharing ministries, and the Treasury/IRS (revenue and guidance burdens).
Why It Matters
By decoupling HSAs from high-deductible health plans and widening permitted uses, the bill materially increases taxpayers' access to tax-advantaged health savings and funding for alternative care models while expanding the federal tax expenditure. That shift affects how employers design benefits, how insurers price products, and how the IRS must administer and police eligibility and substantiation.
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What This Bill Actually Does
Section-level changes recast HSAs from an incentive tied to high-deductible insurance into a broadly available tax-preferred account for individuals with many types of health coverage. The bill rewrites the definition of “eligible individual” in §223(c)(1) to list group and individual plans, short-term limited-duration plans, Medicare Parts A/B, Medicaid, CHIP and qualified look-alikes, TRICARE, VA health programs, Indian Health Service coverage, and federal employee coverage — and separately recognizes participation in health care sharing ministries.
Practically, that means people enrolled in those programs may open and contribute to HSAs where they could not before.
The bill raises the statutory contribution floor and ceilings in §223(b): it replaces the prior numeric limits with $10,800 for individuals and $29,500 for family coverage and directs that limits be indexed starting for tax years after 2026. It also permits HSAs to pay insurance premiums for the newly enumerated types of coverage by amending §223(d)(2), a change that departs from the longstanding rule that HSA withdrawals generally cannot be used for premium payments except in narrow situations (COBRA, long-term care, etc.).On qualifying expenses, the bill adds two new categories to the medical-expense rules: (1) periodic provider fees and prepaid amounts for specified medical services (added to §223(d) and to §213(d) for itemized deductions' definition of medical care), and (2) membership and administrative fees for health care sharing ministries.
Importantly, the bill simultaneously states that those subscription arrangements and health care sharing ministries shall not be treated as health insurance or a “health plan” for purposes of the title — an explicit carve-out intended to preserve HSA eligibility while avoiding insurance regulation.Other mechanics: the statute lowers the additional tax on nonqualified distributions from 20% to 10% and applies nearly all changes to taxable years beginning after December 31, 2025. Multiple conforming edits across §223 and related Code sections (e.g., §106, §408, §26) align cross-references to the new, broader eligibility language.
The combined effect is to increase HSA utility and allowed uses, but it also creates a host of administrative and enforcement questions for the IRS and HSA custodians about substantiation, valuation, and the boundary between insurance and prepaid care.
The Five Things You Need to Know
The bill replaces the HSA contribution numbers with $10,800 for individual coverage and $29,500 for family coverage and instructs the IRS to begin cost-of-living adjustments for taxable years after 2026.
It amends IRC §223(c)(1) to treat Medicare Parts A/B, Medicaid, CHIP, TRICARE, VA programs, Indian Health Service coverage, and federal employee coverage as qualifying coverage for HSA eligibility.
HSAs may be used to pay premiums for the newly eligible plans and cover periodic fees for defined medical services and prepaid screening/diagnostic/treatment services under §223(d) and §213(d).
The bill adds health care sharing ministry membership and administrative fees to qualified medical expenses and explicitly declares such ministries not to be treated as ‘health plans’ for the purposes of the Code.
The additional tax on nonqualified HSA distributions is cut from 20% to 10%, and essentially all changes take effect for taxable years beginning after December 31, 2025.
Section-by-Section Breakdown
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Short title
Designates the Act as the "Personalized Care Act of 2025." This is procedural and does not change substantive tax or benefits rules.
Broadens who counts as an ‘eligible individual’
Substitutes the prior high-deductible-plan requirement with an enumerated list of qualifying coverage types in §223(c)(1): group or individual health plans, health insurance including short-term limited-duration plans and medical indemnity plans, a range of government programs (Medicare A/B, Medicaid, CHIP and CHIP look-alikes, TRICARE, VA programs, Indian Health Service, and federal employee coverage), and participation in health care sharing ministries. The section also makes a series of conforming edits across §223 and related provisions to replace references to a “high deductible health plan” with the new coverage language. The effective date applies to taxable years beginning after December 31, 2025 — meaning the IRS and plan sponsors must be ready to operationalize new eligibility rules for 2026 filings.
Sharp increase and indexation of contribution limits
Amends §223(b) to set the statutory contribution amounts at $10,800 (individual) and $29,500 (family) and revises §223(g) so cost-of-living adjustments apply to taxable years beginning after 2026 with 2025 as the base year. This replaces the small-dollar statutory caps that have historically been adjusted slowly and signals materially larger tax-preferred accumulation opportunities for account holders.
Permits premium payments and recognizes subscription care
Section 4 alters §223(d)(2) to allow HSA funds to pay premiums for the plans newly described in §223(c)(1)(A). Section 5 adds a new §223(d)(2)(D) clause to include periodic fees paid to a physician for defined services and prepaid medical services as qualified medical expenses, while also adding a non-insurance carve-out that prevents such arrangements from being labeled as “health plans” under §223. Section 6 mirrors the expansion in the itemized-deduction rules by adding periodic provider fees to §213(d). Together these mechanics enable direct primary care and subscription-style models to be paid with tax-advantaged dollars, but they also create questions about substantiation, service definitions, and pricing that account custodians must address.
Reduces the excise on nonqualified distributions
Amends §223(e)(4)(A) to lower the tax penalty on nonqualified HSA distributions from 20% to 10%. That change reduces the disincentive for using HSA funds for nonmedical purposes and changes the risk calculus for account holders, potentially affecting long-term savings behavior.
Treats health care sharing ministry fees as qualified expenses and carves out ministry status from ‘health plan’
Section 8 adds a new §223(d)(2)(E) to include amounts paid by members for sharing of medical expenses and administrative fees as qualified medical expenses, and inserts §223(c)(5) to state explicitly that a health care sharing ministry is not treated as a health plan or insurance under the title. Section 9 likewise adds a paragraph to §213(d) treating sharing-ministry membership fees as medical care. Those parallel edits put sharing-ministry fees on par with insurance premiums for HSA purposes while denying them insurance status for other Code purposes — a legal design to permit HSA payment while avoiding insurance regulation via the Internal Revenue Code.
Uniform effective date for most provisions
The bill sets the effective date for its amendments to taxable years beginning after December 31, 2025. Trustees, employers, insurers, and the IRS therefore face a single transition date for implementing eligibility, contribution, premium-payment, and qualified-expense changes.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Existing and new HSA account holders — People who are enrolled in Medicare, Medicaid, CHIP, TRICARE, VA programs, Indian Health Service coverage, federal employee plans, or who participate in health care sharing ministries would become eligible to open and contribute to HSAs and use HSA funds for premiums and subscription fees, unlocking a significant new tax-preferred funding pathway.
- Direct primary care and subscription-model providers — Providers that charge periodic fees or sell prepaid service bundles gain a new payment stream financed with pre-tax dollars, improving cash flow and potentially expanding demand for these models.
- Health care sharing ministries — Membership and administrative fees become HSA-eligible expenses, effectively subsidizing participation through tax-advantaged dollars and increasing the ministries' value proposition to members.
Who Bears the Cost
- Federal Treasury (revenue loss) — Broadening eligibility, allowing premium payments, and increasing contribution caps expand the HSA tax expenditure and will reduce federal receipts absent offsetting revenue measures.
- IRS and tax administrators — The agency will need to issue detailed guidance, create reporting changes, and police new categories of qualified expenses (subscription fees, prepaid services, ministry payments), increasing administrative burden.
- HSA trustees and custodians — Banks, custodians, and record-keepers must update systems, develop new substantiation processes, and retool distribution rules to handle premium payments, periodic fees, and new documentation standards.
- Insurers and risk pools — Allowing premium payment from HSAs and broadening eligibility may alter selection dynamics; insurers could face price pressure or adverse selection, especially for short-term and indemnity products now HSA-funded.
Key Issues
The Core Tension
The central dilemma is between expanding individual choice and tax-preferred financing for a wider array of health coverage and care models, and preserving the original fiscal and risk-management rationale for HSAs: limiting generous tax breaks to those taking on meaningful financial risk. Broad eligibility and permitted uses increase flexibility but widen the tax expenditure, complicate enforcement, and risk destabilizing insurance markets and program design.
The bill bridges two difficult policy choices simultaneously: it enlarges tax-advantaged savings and permits flexible financing of non-traditional care while preserving carve-outs that prevent those arrangements from being regulated as insurance under the Code. That design creates practical and enforcement gaps.
First, treating subscription/provider periodic fees as qualified medical expenses raises substantiation and valuation problems: how will custodians and the IRS verify that a periodic fee purchased a defined, allowable service versus access to nonmedical amenities? The bill provides no billing or certification standard, so administrative guidance will be essential.
Second, the explicit exclusion of subscription arrangements and health care sharing ministries from the definition of “health plan” aims to keep those models HSA-eligible without triggering insurance law, but it invites regulatory arbitrage. Entities could structure offerings to capture HSA dollars while providing limited risk protection, shifting cost and risk across the market.
Third, opening HSAs to Medicare and Medicaid enrollees upends a long-standing policy tether between HDHPs and HSAs intended to limit tax-advantaged accumulation to those exposed to high cost-sharing; the result may be different risk and saving behaviors among retirees and low-income individuals and potentially larger federal subsidies to populations that already receive direct program benefits.
Finally, the large numeric increase in contribution caps and the reduction of the penalty for nonqualified withdrawals change user incentives. Higher caps accelerate the pace of tax-preferred accumulation and could concentrate benefits among higher-income savers, while a lower penalty mildly reduces the deterrent against using funds for nonmedical purposes.
The net outcome — more taxpayer cost, possible redistribution of benefit, and complex enforcement needs — depends heavily on forthcoming IRS rules and how quickly market actors adapt.
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