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HSA-Compatible, Clinic-Based Care: What Changed—and Why It Matters to Public Sector Employers

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HSA-Compatible, Clinic-Based Care: What Changed—and Why It Matters to Public Sector Employers

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For years, public sector employers faced a frustrating tradeoff: offer convenient clinic-based care or preserve employees’ Health Savings Account (HSA) eligibility, but not both. In 2026, that equation has changed. New federal rules tied to the One Big Beautiful Bill Act now allow many workers in HSA-qualified high-deductible health plans (HDHPs) to access membership-based clinic and direct primary care models—without losing HSA tax advantages.

For cities, counties, school districts, and other public agencies, this shift unlocks a powerful combination: modern, clinic-centered care models that reduce claims and improve access, paired with the financial flexibility and savings of HSAs. Understanding what changed and how to structure HSA-compatible clinics is now a strategic priority for public sector benefits leaders.

Why HSAs and On-Site Clinics Historically Clashed

Under long-standing federal rules, individuals could not have any non-HDHP coverage that paid for non-preventive services before the deductible and still remain HSA-eligible. In practice, that meant access to a robust, low- or no-cost employer clinic could be treated as “other coverage” that disqualified employees from contributing to HSAs.

Guidance in IRS Notice 2008-59 clarified that employees remain HSA-eligible if an on-site clinic does not provide “significant” benefits beyond limited services such as first aid, immunizations, and treatment for workplace injuries. IRS Notice 2008-59. However, if an employer-sponsored clinic offered a broad range of primary care, chronic care, or low-cost acute care services, that clinic could be considered disqualifying coverage for HSA purposes.

Commentary at the time from industry outlets like Business Insurance’s summary of IRS guidance on HSAs and on-site clinics emphasized the operational tension this created for employers. To stay safe, many public employers either:

Limited their clinics to narrow “permissible” services (first aid, occupational health, basic preventive care), or
Steered HDHP/HSA members away from using the clinic for anything beyond those services.

Policy analyses from organizations like KFF’s 2025 brief on HSA expansion proposals underscored that under prior law, access to an on-site clinic with substantial free or heavily subsidized services could make an individual ineligible for HSA contributions. For public employers that saw on-site or near-site clinics as key to managing costs and improving access, this created a lose-lose dilemma.

The Game-Changer: New Law Enables HSA-Compatible Clinic Care

That long-standing conflict has now been largely resolved. In 2025, Congress passed the One Big Beautiful Bill Act (OBBB), a sweeping tax and benefits law that, among other things, modernizes the relationship between HSAs and alternative primary care models.

Direct Primary Care and Clinic Memberships No Longer “Disqualifying Coverage”

Benefits law experts note that OBBB includes a provision effective January 1, 2026, that removes many direct primary care (DPC) and similar clinic membership arrangements from the definition of disqualifying coverage for HSA purposes. As summarized by Newfront’s analysis of OBBB’s impact on employee benefits, individuals enrolled in an HSA-qualified HDHP can also participate in certain DPC or clinic membership programs without losing HSA eligibility.

The key conditions include:

The arrangement charges a fixed periodic fee for broad primary care services (for example, a monthly membership).
The fee does not exceed a specified monthly cap, such as $150 per individual or $300 per family, indexed or adjusted per the statute and guidance.
The membership covers primary care services only, not major procedures, hospital care, or high-cost drugs within that same fee.

Under OBBB, qualifying DPC or clinic membership fees are also classified as HSA-eligible medical expenses, meaning employees can use HSA funds to pay them tax-free. Newfront highlights that this makes it possible to pair an HDHP, an HSA, and a DPC-style clinic in a way that was previously prohibited.

Benefits advisors like The Mahoney Group’s “New HSA Rule Makes Direct Primary Care a Game Changer” explainer describe the practical impact: under the old rules, DPC arrangements were generally treated as a separate health plan, which disqualified HSA contributions. Employers often felt forced to choose between HSAs and DPC. The new law “removes that tension” by explicitly allowing DPC and similar clinic memberships within defined guardrails, making them HSA-compatible.

Telehealth Safe Harbor Made Permanent

OBBB also solidifies another key HSA-friendly feature: first-dollar telehealth. During the COVID-19 pandemic, temporary relief allowed HSA-qualified HDHPs to cover telehealth services before the deductible without jeopardizing HSA status. That relief had been extended in short-term increments.

Under the new law, pre-deductible telehealth coverage is now permanent for HSA-qualified HDHPs, as detailed in Newfront’s OBBB summary and corroborated by other benefits law analyses that track OBBB’s HSA provisions. This means an employer can offer first-dollar telehealth—whether integrated with a clinic or provided separately—while preserving employees’ ability to contribute to HSAs.

For public sector employers, this is particularly valuable because telehealth often complements clinic-based care (for example, after-hours coverage, follow-up visits, or remote support for remote workers and field staff).

What Did Not Change: Traditional On-Site Clinic Rules

Earlier drafts of federal legislation considered explicitly loosening the rules for traditional on-site clinics by carving out certain employer clinic arrangements from the definition of disqualifying coverage. Analyses such as KFF’s tracking of HSA-related provisions in the 2025 budget process noted proposals to treat certain limited-scope employer clinics more favorably for HSA purposes. KFF, “Tracking the Health Savings Accounts Provisions in the 2025 Budget Bill”

However, as benefits attorneys have pointed out in post-enactment summaries of OBBB, those specific employer-clinic carveouts did not make it into the final law. The core HSA rules for traditional on-site clinics (as outlined in IRS Notice 2008-59) remain in place, but employers now have a separate, clearly defined pathway for making clinic access HSA-compatible by structuring it as a DPC-style membership that fits within the new statutory framework.

How Public Employers Can Structure HSA-Compatible Clinic-Based Care

With these changes, public sector employers have a far clearer roadmap for offering clinic-based care that works alongside HSAs rather than against them.

Design Clinics as Membership-Based Primary Care Programs

The most straightforward approach is to structure your on-site or near-site clinic as a primary care membership that meets the new legal criteria. In practice, that might look like:

A fixed monthly membership fee per employee (and possibly dependents) that covers a broad set of primary care services—office visits, basic labs, chronic condition management, care coordination, and preventive counseling.
Exclusion of major procedures, high-cost imaging, inpatient care, or specialty drugs from that membership fee (those remain covered under the HDHP).
Fee levels that stay within the statutory caps, such as $150 per month for individuals and $300 per month for families, as outlined in benefits commentary on OBBB’s DPC provisions. Newfront

Depending on your strategy, the membership fee could be:

Paid entirely by the employer as a health benefit.
Shared between employer and employee.
Paid by employees via pre-tax HSA contributions (or a combination of employer HSA contributions and employee dollars).

So long as the arrangement satisfies the new statutory definition, participating employees can remain HSA-eligible—and can use HSA funds to pay their clinic membership fees starting in 2026.

Integrate Permanent First-Dollar Telehealth

Public employers can also integrate telehealth into their clinic strategy without jeopardizing HSA status. Because OBBB made pre-deductible telehealth coverage permanent for HDHPs, you can:

Offer zero-cost telehealth visits for minor acute issues, mental health check-ins, and chronic care follow-ups.
Use telehealth to provide extended-hours coverage that complements in-clinic daytime services.
Support remote workers or field staff (such as utility crews or park workers) who may not be near the physical clinic.

This creates a blended model: high-touch primary care through an employer-sponsored clinic, supported by always-available telehealth—all while preserving HSAs as a core part of your benefits strategy.

Why This Matters for Public Sector Employers

Aligning Cost Control and Employee Experience

On-site and near-site clinics have already demonstrated their value in the public sector. The City of Hanford’s Employee Care Connection clinic, for example, serves city and school district employees and their dependents with acute, preventive, and ongoing care, plus wellness coaching and diabetes management—all with no copays. The clinic is operated by a dedicated partner and designed as a free, fast resource exclusive to insured public employees and their families.

Research and case studies compiled by ICMA’s PM Magazine article “The Hidden Value: Employer-Sponsored Health Clinics Revolutionizing Primary Care” show that employer-sponsored clinics can:

Reduce emergency room visits and unnecessary specialist referrals.
Enable proactive chronic condition management, lowering long-term costs.
Cut absenteeism by making same-day, work-adjacent care the default.

In Richmond, Virginia, for instance, city leaders reported that employees who actively used the clinic generated meaningful savings in healthcare costs per person and saw better outcomes for chronic conditions. ICMA

Historically, the catch was that offering this level of primary care through a clinic could clash with HSA eligibility rules. Now, with DPC-style memberships explicitly permitted alongside HSA-qualified HDHPs, public employers can design clinic programs that are both generous and compliant.

Supporting Diverse Workforces and Operational Needs

Public sector workforces are diverse—teachers, police officers, firefighters, public works crews, administrative staff, and more. Many face unique barriers to accessing traditional community-based care, such as nonstandard schedules, location constraints, or difficulty getting timely appointments during the workday.

A dedicated clinic, designed and staffed with these realities in mind, can improve access for all segments of the workforce. With the new HSA rules, employees who prefer HDHP/HSA coverage do not have to choose between tax-advantaged savings and convenient clinic access. Instead, they can:

Enroll in an HSA-qualified HDHP.
Participate in a compliant clinic membership or DPC program.
Use HSA funds to pay the membership fee (or enjoy employer-paid membership) on a tax-advantaged basis.

This combination can be particularly attractive in competitive hiring markets, helping public employers brand themselves as “employers of choice” that offer both cost-effective coverage and modern healthcare access.

Maximizing Budget Impact and Long-Term Savings

Because public budgets are typically set annually and closely scrutinized, the ability to predict and contain health costs is invaluable. Clinic-based primary care, especially when paired with strong chronic disease management and wellness, can reduce high-cost claims that otherwise blow up budgets mid-year.

Experience from cities like Richmond and Hanford suggests that clinics can generate measurable reductions in per-member spending and chronic condition costs over time while improving outcomes and satisfaction. ICMA City of Hanford With the HSA barrier largely resolved, these returns are now accessible to a wider range of employers whose workforce prefers or depends on HSAs.

Bottom Line for Public Sector Benefits Leaders

Regulatory shifts tied to the One Big Beautiful Bill Act have finally brought HSAs and clinic-based care into alignment. For public sector HR and benefits leaders, this opens a new chapter in healthcare strategy.

If you have hesitated to launch an on-site or near-site clinic—or a DPC partnership—because you did not want to undermine employees’ HSA eligibility, it is time to re-evaluate. With careful structuring and the right partners, you can now design an HSA-compatible clinic program that:

Delivers convenient, high-quality primary care tailored to your workforce.
Supports chronic disease management and preventive care.
Leverages permanent telehealth safe harbors for first-dollar virtual care.
Preserves and enhances the value of HSA-qualified HDHP offerings.

For cities, counties, school districts, and other public agencies, that means you no longer have to choose between modern clinic-based care and the tax advantages of HSAs. You can offer both—and in doing so, you can better care for your employees while stewarding taxpayer dollars more efficiently.

Interested in exploring an on-site or near-site clinic for your organization? Learn how a customized clinic solution could work for your employees and health plan.