HSA expansion could get $1T from Fed interest cut plan

For healthcare providers, insurers, and patients, the proposal offers a potential funding breakthrough for long-stalled changes like HSA expansion beyond high-deductible plans and real-dollar price disclosure. It would shift the financing burden away from premiums or taxes and toward the Federal Reserve's interest-on-reserves budget, creating new operational requirements for hospitals and brokers while widening access to health savings vehicles.

The key development is Representative Eric Burlison's (R-Mo.) announcement on Wednesday, August 12, 2026, of a plan to stop the Federal Reserve from paying interest on bank reserves, redirecting an estimated $1 trillion over the next decade toward funding his Great American Healthcare Act. The proposal directly links monetary policy infrastructure with healthcare financing, a pairing that carries significant consequences for financial markets, the banking sector, and the legislative process. By targeting interest on reserve balances (IORB), Burlison is not proposing a conventional tax increase or budget cut but rather a fundamental change to how the Federal Reserve implements monetary policy and how it remunerates depository institutions for funds held at the central bank.

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It would shift the financing burden away from premiums or taxes and toward the Federal Reserve's interest-on-reserves budget, creating new operational requirements for hospitals and brokers while widening access to health savings vehicles.

The Great American Healthcare Act itself contains several consumer-facing healthcare reforms. It would expand Health Savings Account eligibility to individuals without high-deductible health plans and raise annual HSA contribution limits. It would require hospitals and insurance brokers to show real dollar prices instead of estimates for medical treatments and healthcare plans, thereby increasing price transparency. The bill also would allow a broader pool of qualified professionals to prescribe low-risk drugs and give businesses and other groups greater flexibility in offering group healthcare plans. These measures, supporters argue, would put patients back in charge of their healthcare spending and introduce more price competition.

The funding mechanism, however, is where the proposal becomes economically and legally complex. The Federal Reserve has paid interest on reserves as a core tool for controlling short-term interest rates, particularly since the 2008 financial crisis. In an abundant-reserve regime, IORB acts as a floor for the federal funds rate, helping the Fed keep rates within its target range without constantly intervening in money markets. If Congress were to eliminate or sharply curtail IORB, banks would likely reduce their reserve holdings and seek higher-yielding alternatives such as Treasury bills or reverse repurchase agreements. This would shrink the Fed's balance sheet liabilities and could erode the central bank's ability to steer economy-wide interest rates smoothly. The article itself acknowledges this risk, noting that halting most interest payments on reserves "might not lead to dollar-for-dollar savings" because banks would pull reserves and weaken the Fed's control over rates.

The legal and regulatory questions are substantial. Congress has clear authority to amend the Federal Reserve Act, including the provisions authorizing interest on reserves. But using the central bank's balance sheet as a fiscal offset is a departure from the traditional separation between monetary and fiscal policy. It raises concerns about Federal Reserve independence, as future Congresses might see the Fed's interest payments or asset holdings as a recurring piggy bank for spending priorities. The proposal could face opposition not only from the Fed but also from banking trade groups, whose members currently receive billions of dollars in risk-free interest income each year. If banks lose that income stream, the impact on bank profitability—particularly for smaller institutions with large reserve balances relative to assets—could be meaningful.