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Health savings account caps rise $50 for self-only plans, $150 for family coverage
The amount that individuals may contribute annually to their health savings accounts (HSAs) for self-only coverage will rise by $50 next year. For HSAs linked to family coverage, the contribution cap will rise by $150.
Revenue Procedure 2017-37, issued May 4, the IRS provided the inflation-adjusted HSA contribution limits effective for calendar year 2018, along with minimum deductible and maximum out-of-pocket expenses for the high-deductible health plans (HDHPs) that HSAs must be coupled with.
2018 vs. 2017 HSA Contribution Limits
These rate changes reflect cost-of-living adjustments, if any, and rounding rules under Internal Revenue Code Section 223.
"The contribution limits for various tax advantaged accounts for the following year are usually announced in the fall, except for HSAs, which come out in the spring," explained Harry Sit, CEBS, who edits The Financial Buff blog. Due to a mild uptick in inflation and rounding rules, the 2018 HSA limit will have small increases, he noted.
"Employers should consider these limits when planning for the 2018 benefit plan year and should review plan communications to ensure that the appropriate limits are reflected," advised Damian A. Myers, a labor and employee benefits attorney with Proskauer in Washington, D.C.
Age 55 Catch Up Contribution
Account holders who will be 55 or older by the end of year can contribute an additional $1,000 to their HSA. "If you are married, and both of you are age 55, each of you can contribute additional $1,000," Sit said. But there's a catch, he added.
An HSA is in an individual's name—there is no joint HSA even when the plan provides family coverage—so only an account holder age 55 or older can contribute the additional $1,000 in his or her own name. "If only the husband is 55 or older and the wife contributes the full family contribution limit to the HSA in her name, the husband has to open a separate account for the additional $1,000. If both husband and wife are age 55 or older, they must have two HSA accounts if they want to contribute the maximum," Sit said.
[SHRM members-only HR Q&A:
Are employer contributions to an employee's health savings account (HSA) considered taxable income to the employee?]
Not All High-Deductible Plans Are HSA Eligible
Besides a high deductible, to qualify as an HDHP, a health insurance plan must not offer
any benefit beyond preventive care before those covered by the plan (individuals or families) meet their annual deductible. "An otherwise high deductible plan fails the HSA qualification when it tries to be nice and it gives you some benefits before you meet the deductible," Sit explained. For instance, if the plan provides coverage in the following areas before the individual or family satisfies their deductible, it is not HSA-eligible.
Besides the minimum deductible, the out-of-pocket maximum of an HSA-eligible plan also can't be higher than an inflation-adjusted number published by the IRS every year. "If your plan has a high deductible and a high out-of-pocket maximum, higher than the IRS published number, it's also not HSA-eligible," Sit said.
Employer Contribution Methods
Employers that contribute to the HSAs of their employees may do so inside or outside of a cafeteria (Section 125) plan. The contribution rules are different for each option, explains
HSAs and Employer Responsibilities, an analysis by United Benefit Advisors, a network of benefits advisory organizations.
Coverage of Adult Children
While the Affordable Care Act (ACA) allows parents to add their adult children (up to age 26) to their health plans, the tax laws regarding HSAs have not changed and an adult child must still be considered a tax dependent in order for an adult child’s medical expenses to qualify for payment or reimbursement from a parent’s HSA. This means that an employee whose 24-year-old nondependent child is covered on her HSA-qualified health plan is not eligible to use HSA funds to pay that child's medical bills.
If account holders can't claim a child as a dependent on their tax returns, then they can't spend HSA dollars on services provided to that child. Under the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendant of these) who:
Affordable Care Act Limits Differ
There are two sets of limits on out-of-pocket expenses that employers should keep in mind, which can be a source of confusion.
Starting in 2015, the Department of Health and Human Services (HHS) established annual out-of-pocket or cost-sharing limits under the ACA, applying to essential health benefits covered by a plan (grandfathered plans are not subject to the ACA's cost-sharing limits).
The ACA's annual out-of-pocket maximums have been slightly higher than the IRS's out-of-pocket limits on HSA-qualified HDHPs. To qualify as an HDHP, a plan must comply with the lower out-of-pocket maximum for HDHPs.
HHS published its 2018 ACA out-of-pocket limits in the
Federal Register on Dec. 22, 2016, in its
Notice of Benefit and Payment Parameters for 2018 final rule.
"The ACA requires the out-of-pocket maximum to be updated annually based on the percent increase in average premiums per person for health insurance coverage," explains
an ACA compliance bulletin by the Stellar Benefits Group in Solon, Ohio, which provides an overview of the HHS's 2018 updates.
Below is a comparison of the two sets of limits.
Out-of-pocket limits for ACA-compliant plans (set by HHS)
Out-of-pocket limits for HSA-qualified HDHPs (set by IRS)
Beginning in 2016, the ACA's self-only annual limit on cost-sharing
applies to each covered individual, regardless of whether the individual is enrolled in self-only coverage or family coverage.
Health Care Legislation and HSAs
"HSA limit increases are currently tied to inflation, but with HSAs slated to play a pivotal role in health care reform, contribution limits may soon be uncoupled from traditional inflation increases and will give Americans much greater capacity for care-related tax savings," noted Harrison Stone, general counsel at ConnectYourCare, a Baltimore-based HSA services provider.
The American Health Care Act,
as passed on May 4 by the U.S. House of Representatives, would nearly double annual HSA contribution limits above the current contribution limits shown above, making the cap equal to the out-of-pocket maximums that apply to high-deductible health plans.
The legislation, which faces an uncertain future in the Senate, also would allow spouses age 55 or older to make catch-up contributions to the same HSA.
More Organizations Use Health Savings Accounts
Among Society for Human Resource Management members polled earlier this year, more than one-half (55 percent) said their organizations offer HSAs coupled with high-deduction health plans, and more than one-third (36 percent) provide an employer contribution to the HSA, according to SHRM's forthcoming
2017 Employee Benefits report, to be released in June.
At the same time, there has been a slight decrease in medical flexible spending accounts (FSAs) over the past five years, while health reimbursement arrangements (HRAs) have held steady at around 20 percent.
(click on graphic to view in separate window)
Related SHRM Articles:
HSA Enrollment Rises as Employer Contributions Fall,
SHRM Online Benefits, May 2017
GOP’s Health Care Bill Highlights an HSA Political Divide,
SHRM Online Benefits, March 2017
New Law Lets Small Employers Use Stand-Alone Health Reimbursement Arrangements,
SHRM Online Benefits, December 2016
Health Care Consumerism: HSAs and HRAs,
SHRM Online Benefits, May 2016
Address HSA Misconceptions During Open Enrollment,
SHRM Online Benefits, October 2016
HSA Tax Benefits Often Overlooked,
SHRM Online Benefits, July 2016
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