On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), a sweeping piece of legislation nearly 1,000 pages long. Many of the House-passed bill’s provisions that would have improved health savings accounts (HSAs) and individual coverage health reimbursement arrangements (e.g., the CHOICE account and HSA Medicare eligibility proposals) were not included in the final OBBBA but may resurface in the future.
Most of the OBBBA changes will be effective next year, but the telehealth/remote care HSA compatibility provision is effective back to January 1, 2025. The increase in dependent childcare (although not indexed for future changes) will be helpful in 2026 and should be considered during the next open enrollment, and the direct primary care provision may be of interest to those with HSAs. Eligibility for Medicaid will be scaled back for certain individuals, including some categories of immigrants, and new community engagement requirements will apply for able-bodied adults under age 65.
Changes for Health Savings Accounts
Permanent extension of telehealth safe harbor
Perhaps the most significant provision for employers sponsoring high-deductible health plans (HDHPs) is the OBBBA’s permanent extension of the safe harbor for predeductible coverage for telehealth (and other remote care) services. This safe harbor first went into effect during the COVID-19 pandemic when temporary emergency relief allowed HDHPs to offer telehealth coverage before individuals met their HDHP deductible without jeopardizing the plan’s HDHP status. The temporary relief was extended twice before expiring at the end of 2024.
The OBBBA retroactively extends the safe harbor beginning after December 31, 2024 (prior relief applied before then) and makes the safe harbor permanent going forward. This means that telehealth coverage before the HDHP deductible is now “permitted coverage” for HDHP purposes, with no sunset or expiration date.
The OBBBA did not include a provision directing the agencies to issue any regulations or guidance on the scope of “telehealth” or “other remote care services,” but formal guidance on the scope of the services that qualify would be helpful. For example, if a remote visit with a health care provider leads to a prescription, is the cost of the prescription also considered permitted “remote care”? Further agency guidance would be welcomed.
HSA-compatible direct primary care service arrangements
Another big change for HSAs is the compatibility of coverage under direct primary care service arrangements (DPCs) with HSAs. In a DPC, a fixed recurring fee is paid directly to a primary care provider for health care services. DPC coverage does not currently qualify as permitted coverage, but certain DPC coverage will qualify as permitted coverage beginning January 1, 2026. In addition, the fixed fee qualifies as an eligible expenditure for HSA purposes.
The OBBBA imposes limitations on the types of DPC arrangements that will be compatible with an HSA. An HSA-compatible DPC arrangement must:
- Consist solely of primary care services provided by physicians who are primary care practitioners and cannot include any of the following:
- Procedures that require general anesthesia.
- Prescription drugs other than vaccines.
- Laboratory services not typically administered in an ambulatory primary care setting.
- Have a fixed periodic fee that does not, in the aggregate, exceed $150 per month (or $300 per month for arrangements covering more than one person) (this amount will be adjusted for inflation).
The OBBBA directs the Department of Health and Human Services (HHS) to issue regulations and other guidance on how to apply these provisions. For now, individuals should be cautious of any DPC arrangements that include benefits that are not clearly primary care services.
HDHP treatment for bronze or catastrophic exchange individual coverage
Beginning January 1, 2026, bronze- or catastrophic-level individual coverage provided on the Exchange will be treated as HSA-compatible coverage.
Dependent Care Assistance Plan Limits Raised to $7,500 Beginning in 2026
For the first time since dependent care assistance plans (DCAPs) were created in 1988, Congress has increased the maximum annual exclusion for DCAP benefits. For over 35 years the maximum annual exclusion has been fixed at $5,000 (or $2,500 for separate returns filed by married individuals), with no adjustment for inflation. Beginning January 1, 2026, the maximum annual exclusion increases (again without future indexing) to $7,500 (or $3,750 for separate returns filed by a married individual).
The exclusion continues to be determined on a calendar-year basis. Employers with plan years that begin in 2025 but end in 2026 (e.g., non-calendar-year plans) should consider whether (and how) to prorate and accommodate the increase for the months of the plan year in 2026. Although good news for employers and their employees with children, the increases could adversely impact Code Section 129 nondiscrimination testing because higher-paid employees will be more able to increase their DCAP elections.
The OBBBA did not increase the maximum dependent care tax credit (which remains at $3,000 for one child and $6,000 for two or more dependents), but it does increase the percentage of qualifying expenditures subject to the credit from 35% to 50%. It also introduces a two-tier phaseout structure based on adjusted gross income. These changes may affect the appeal of the DCAP benefits for employees based on their income if the dependent care tax credit is more beneficial than participation in the DCAP.
Tax-Free Employer Contributions to Trump Accounts
The OBBBA establishes “Trump accounts,” a new investment vehicle similar to an individual retirement account for parents to set up for their minor children. Beginning in 2026, parents can contribute up to $5,000 per child to a Trump account (indexed for inflation). In addition to the parents’ $5,000 contribution, employers can contribute up to $2,500 annually, indexed and tax-free, to Trump accounts for their eligible employees or their employees’ eligible dependents. Employer contributions must be made under the terms of a written plan document that complies with rules similar to those for DCAPs.
Say Goodbye to the Bicycle Commuter Benefit
The OBBBA has permanently removed the tax exclusion for qualified bicycle commuting benefits beginning January 1, 2026. Other transit and parking benefits were not impacted. State and local laws mandating commuter benefits are on the rise (such as for vanpooling and mass transit passes), but any such benefits provided by employers pursuant to such mandates will not be excluded from income for federal tax purposes.
Permanent Extension of CARES Act Tax-Free Student Loan Repayment Assistance
The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 amended Code Section 127 to allow tax-free reimbursement of qualifying student loan payments until December 31, 2025. Section 127 provides a tax exclusion for employer-provided education and tuition assistance up to $5,250. The OBBBA permanently extends the student loan assistance benefit. In addition, the $5,250 limit under Section 127 will be adjusted for inflation beginning in tax years after 2026.
If you have any questions, or would like additional information, please contact one of the attorneys on our Employee Benefits & Executive Compensation team.
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