How the One Big Beautiful Bill Affects Employee Benefits

Executive Summary 
Congress has finally completed passage of the “One Big Beautiful Bill Act” (OBBB), a sweeping and comprehensive piece of legislation incorporating many aspects of tax, health, defense, and energy policy.  Included in the OBBB are multiple significant changes to employee benefits law.  Under the OBBB, employers have new benefit options available going forward with respect to HSAs, dependent care FSAs, student loan repayment assistance, and “Trump Accounts”.  

OBBB HSA Expansions 
Although not as extensive as the original House-passed version of the bill, the OBBB expands HSA access and utilization in three significant areas.  

HSA Expansion #1: First-Dollar Telehealth Coverage Revived and Made Permanent  
The Backstory 
The CARES Act, CAA 2022, and CAA 2023 all provided relief in light of the pandemic from the minimum deductible requirement for telehealth and other remote care services—regardless of whether such services were preventive.  Those legislative packages allowed individuals to maintain HSA eligibility even where their high deductible health plan (HDHP) waives the deductible for any telehealth or other remote care.  

This telehealth relief only extended to plan years beginning before January 1, 2025.  Accordingly, for plan years beginning in 2025 (including 2025 calendar plan years), HDHPs were required to resume imposing the standard minimum statutory deductible for telehealth and other remote care services in order for covered participants to maintain their HSA eligibility.  

• Note: The original draft of the government funding bill at the end of 2024 would have extended telehealth relief through 2026.  After severe public backlash to the size and scope of the bill, a much skinnier version passed that did not include the HSA telehealth relief extension.  

The OBBB Changes 
The OBBB now provides permanent relief allowing HDHPs to provide first-dollar telehealth and other remote care services.  This change is effective retroactively to plan years beginning after December 31, 2024 (i.e., to when the last extension expired).  The provision is the result of significant lobbying efforts by the telehealth industry and widespread support throughout the broader benefits industry (including Newfront).  Making the relief permanent is a big win for employers that have had to grapple with the on-again/off-again nature of these HSA telehealth rules for years. 

HSA Expansion #2: Including All Bronze and Catastrophic Plans Available on Exchange as HDHPs 
The Backstory 
HSA eligibility is required for any individual to establish an account and make or receive HSA contributions.  Individuals must satisfy the following four requirements to be HSA-eligible: 

1. Be covered by a qualified high deductible health plan (HDHP); 

2. Have no other disqualifying health coverage; 

3. Not be enrolled in any part of Medicare; and 

4. Not be able to be claimed as a dependent on someone else’s current-year tax return. 

 For more details: 

• The HSA Eligibility Requirements: Part I 

• The HSA Eligibility Requirements: Part II 

• Newfront Go All the Way With HSA Guide 

The OBBB Changes 
The OBBB automatically treats as an HDHP all Bronze and Catastrophic level plans that are available on the individual market through the Exchange.  This will open access to HSAs for those enrolled in a Bronze of Catastrophic plan—even if those plan options would not otherwise meet the standard HDHP requirements.  This change is significant for Exchange policies because many Bronze-level plans currently do not qualify as an HDHP because they provide pre-deductible coverage of non-preventive services (e.g., prescription drugs and office visits), and many Catastrophic plans do not qualify as an HDHP because their structure does not conform to the maximum permitted OOPM.  

HSA Expansion #3: Direct Primary Care Not Disqualifying Coverage and a New HSA-Eligible Expense 
The Backstory 
It has never been entirely clear how direct primary care (DPC) models of coverage can be integrated with HSA eligibility.  In a typical DPC arrangement, the monthly fee covers services like office visits for acute illnesses or chronic condition management—services that an HDHP can cover only after the deductible is met.  Most DPCs therefore effectively provide first-dollar coverage for these non-preventive services, which conflicts with the HSA eligibility requirement that no other plan cover such expenses before the deductible. 

The OBBB Changes 
The OBBB changes the law as of 2026 to specifically exclude DPC arrangements from being a form of disqualifying coverage, thereby allowing the DPC approach to be HSA-compatible.  DPC fees cannot exceed $150/month (indexed) for an individual or $300/month (indexed) for family coverage to qualify for the exemption.  The OBBB also provides that such DPC fees are a qualified medical expense that can be paid tax-free from the HSA.  Needless to say, this is a big win for the DPC industry and will likely boost DPC interest and enrollment nationwide.  

OBBB Dependent Care FSA Increase to $7,500 
The Backstory 
Congress set the dependent care FSA limit at $5,000 in 1986 without indexing it to inflation.  With the exception of a one-year blip (the 2021 ARPA increase to $10,500), the dependent care FSA has been stuck at that level for 40 years.  Using the Bureau of Labor Statistics’ standard CPI inflation calculator, $5,000 in 1986 is roughly the equivalent of $14,500 in 2025.  That would roughly match the current national average cost of daycare.  For more details: 

• Why the Dependent Care FSA Limit is Only $5,000 

• Dependent Care FSA Limit Challenges 

• Newfront Section 125 Cafeteria Plan Guide 

The OBBB Changes 
After four decades, a dependent care FSA increase is finally at hand.  For plan years beginning on or after January 1, 2026, the dependent care FSA limit increases to $7,500 ($3,750 for married couples filing separately).  This new limit is not indexed for inflation.  

Note that the OBBB increase is not as substantial as other previous efforts.  For example, in 2021 the House passed an increase to $10,500 (that was also indexed) in the ill-fated Build Back Better bill that never passed the Senate.  The OBBB also does not address the notoriously difficult-to-pass 55% Average Benefits Test, which may become even more challenging with the higher limit.  Nonetheless, after a 40-year wait, it is welcome news for employers to have any form of a dependent care FSA expansion available. It will be interesting to see if this OBBB change starts the ball rolling on additional efforts to further increase and/or index the limit—or if we will have wait until 2066 for the next dependent care FSA limit increase.  

Employers that want to offer this newly available increased limit in 2026 should work with their FSA TPA to make any needed cafeteria plan amendments and revisions to summary benefit materials.  The increase should also be an open enrollment communications priority to ensure employees are aware of the new $7,500 limit.  

OBBB Student Loan Repayment Assistance Made Permanent (and Indexed for Inflation) 
The Backstory 
Employers may provide up to $5,250 annually in tax-free compensation to employees under a §127 qualified educational assistance program.  Such programs must be maintained pursuant to a separate written plan document, and the employer must provide reasonable notification of the availability and terms of the program to all eligible employees.  The main advantage of a §127 educational assistance program (as opposed working condition fringe educational benefits under §132) is that the educational expenses covered by the program do not need to be work-related.  

The CARES Act initially provided that employers could pay for or reimburse up to $5,250 of an employee’s student loans on a tax-free basis from March 27, 2020 (the date of enactment) through the end of 2020 under a §127 educational assistance program.  The CAA extended the availability of this tax-free student loan repayment assistance option for employers through the end of 2025.  

For more details: 

• Employer Tax-Free Student Loan Repayment Assistance 

• Newfront Fringe Benefits for Employers Guide 

The OBBB Changes 
The OBBB makes permanent the ability for employers to offer tax-free student loan repayment assistance under a §127 qualified educational assistance program.  It also indexes the $5,250 qualified educational assistance limit—which includes student loan repayment assistance—starting in 2026.  This limit has been fixed at $5,250 since 1979.  

OBBB “Trump Accounts” With $2,500 Tax-Free Employer Contribution Option 
The Backstory 
Prior to the OBBB, there was a large push by various groups to create the concept of “Invest America” accounts.  The idea has been to provide a financial stake in the capital markets for all children starting at birth so they will learn about investing, benefit from compound growth, and share a common interest in the broad success of American industries.  

The OBBB Changes 
These “Invest America” accounts have been codified in the OBBB under the new naming convention as “Trump Accounts”.  There is a $5,000 contribution limit per child annually.  Children born in 2025-2028 will receive a $1,000 contribution courtesy of Uncle Sam.  Trump Accounts function similarly to Individual Retirement Accounts (IRAs), whereby investments grow tax-deferred.  They will be available starting in 2026.  

Trump Accounts will also now be available as an employee benefit.  Employers may contribute up to $2,500 per year (indexed) to the Trump Accounts of employees or their dependents on a tax-free basis.  This will require a written plan document, and the program will have to comply with similar nondiscrimination rules that apply to dependent care FSAs.  

OBBB Tax-Free Bicycle Commuting Reimbursement Permanently Repealed 
The Backstory 
The Tax Cuts and Jobs Act of 2017 (TCJA) eliminated the $20/month tax-free benefit (originally added in 2009) that permitted employers to reimburse certain bicycle commuting benefits.  The Congressional Joint Committee on Taxation (JCT) estimated at the time that its elimination would raise a measly $5 million per year. Note that the bicycle reimbursement benefit did not permit employee pre-tax contributions, and it was not indexed for inflation.  

The TCJA repeal of the bicycle commuter benefit option was effective for 2018-2025.  If not for the OBBB, this “little tax break that could” was going to make its triumphant return in 2026.  For more details: 

• How the Tax Cuts and Jobs Act Affects Employee Benefits 

• The Bicycle Commuting Expense Reimbursement Benefit 

• Commuter Benefits Overview 

The OBBB Changes 
Some things unfortunately just are not meant to be.  As a (tiny) revenue raiser, the OBBB has now permanently removed the tax-free bicycle commuter benefit option.  Employers wishing to provide any form of bicycle commuting assistance can always continue to do so on a taxable basis.  

What Employee Benefits Provisions Did NOT Make the Final OBBB? 
Many HSA Changes Left on Cutting Room Floor 
The House version of the OBBB was far more ambitious in its efforts to expand HSAs.  It essentially incorporated most of the recently proposed HSA legislation (e.g., Bipartisan HSA Improvement Act, HSA Modernization Act) by throwing in the “kitchen sink” of improvement proposals over the years.  It did not go so far as to incorporate the Graham-Cassidy level expansions from the 2017 ACA repeal/replace efforts that would have more significantly increased contribution limits and allowed HSAs to be used for premiums (which would have truly revolutionized the use of HSAs), but it came as close to that effort as any.  

• For more details: HSA and ICHRA Changes Proposed in House Version of the OBBB 

The following is a list of HSA provisions from the original House-passed version of the bill that did NOT make it into the final OBBB: 

• Allowing individuals who enroll in Medicare Part A to be HSA-eligible; 

• Restricting the ability to use HSAs for premium expenses upon reaching age 65 to only those who are not HSA-eligible; 

• Allowing individuals with access to an on-site medical clinic providing certain limited services to be HSA-eligible; 

• Adding the ability to use an HSA for gym memberships and other similar physical exercise/activity costs of up to $500/year; 

• Allowing both spouses to make the $1,000 catch-up contribution (available at age 55+) to the same HSA; 

• Allowing amounts to be distributed into an HSA from a health FSA or HRA for employees newly enrolled in an HDHP, capped at twice the current-year health FSA salary reduction contribution limit; 

• Allowing individuals to use HSAs for expenses incurred in the 60-day period after enrollment in an HDHP as long as the HSA is established by the end of that 60-day period; 

• Allowing individuals to be HSA-eligible where their spouse is enrolled in a general purpose health FSA; and 

• Increasing the HSA contribution limit by an additional $4,300 individual/ $8,550 family coverage with phase-outs for incomes above $75,000 ($150,000 married), applicable only to employee contributions. 

Some of the vocal industry groups that support HSAs released a coalition letter arguing for the Seante to include HSA expansions in the House-passed version of the OBBB.  The effort was somewhat successful in that it moved the Senate (which originally released an HSA-devoid draft of the bill) to include the three expansions set forth above in the final OBBB.  

Nonetheless, the House Freedom Caucus panned the final OBBB’s HSA expansion efforts as not “substantive” and “watered down.”  Look for such groups to continue to press Congress to incorporate the original House-passed OBBB HSA expansions—and perhaps the even more ambiguous 2017 proposed enhancements—in future legislation.  

ICHRA Codification as CHOICE Arrangements Scrapped 
Individual Coverage HRAs (ICHRAs) allow employers to offer employees a tax-free arrangement to pay for individual market coverage.  They have been available since regulations issued by the first Trump administration took effect in 2020.  

For more details: 

• Newfront ICHRA Guide for Employers 

• ICHRA: Top Three Changes Needed for Prime Time 

• ICHRA: The Health Plan 401(k) Has Arrived 

ICHRAs were set to see a major boost in the original House-passed version of the bill, but the final version did not address ICHRAs.  This is clearly a major disappointment to the burgeoning ICHRA industry.   

The following are a list of ICHRA provisions from the original House-passed version of the bill that did NOT make it into the final OBBB: 

• Rebranding ICHRAs to be known as “Custom Health Option and Individual Care Expense Arrangements,” or “CHOICE Arrangements”; 

• Codifying the current ICHRA regulations (with modifications) into statute; 

• Adding a new requirement to include the ICHRA amount available on the employee’s Form W-2; 

• Allowing employees to pay their share of the premium on a pre-tax basis through the Section 125 cafeteria plan even if it the policy is purchased on the Exchange; and 

• The creation of an employer tax credit for offering an ICHRA. 

Summary: The OBBB Era Begins 
Ever since the ACA, employers have felt the push and pull from different sides of the political spectrum as major legislation continues to have significant ramifications for employee benefits.  The OBBB is the latest in this trend that has included ARRA, the TCJA, the CARES Act, the CAA, and ARPA.  Although the OBBB’s scope and significance is far broader than the narrow employee benefits niche addressed here, these OBBB provisions affecting HSAs, dependent care FSAs, educational assistance, and the fledgling Trump Accounts will provide meaningful new options for employers to consider moving into 2026.    

Given that Republicans still have the trifecta (control of both chambers of Congress and the White House) in place through 2026, employers should be ready to pivot yet again in the wake of any additional reconciliation bill efforts that may begin to percolate soon after the OBBB dust starts to settle.   

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).