The IRS has released the 2016 inflation-adjusted amounts for health savings accounts (HSAs) and high-deductible health plans (HDHPs).

HDHP Minimums and Maximums. The minimum annual deductible for an HDHP will be $1,300 for self-only coverage and $2,600 for family coverage. These amounts have not changed from the 2015 amounts. The maximum annual out-of-pocket for an HDHP will increase to $6,550 for self-only coverage and $13,100 for family coverage.

"Embedded" ACA Out-of-Pocket Maximum. The Affordable Care Act also sets out-of-pocket maximums for non-grandfathered plans. For 2016, the ACA maximum will be $6,850 for self-only coverage and $13,700 for family coverage (compared to $6,550 and $13,100 for HDHPs). In addition, recent HHS guidance provides that, beginning in 2016, the self-only ACA out-of-pocket maximum must be "embedded" within the family ACA out-of-pocket maximum, meaning that no individual may be subject to out-of-pocket expenses in excess of the self-only maximum. In the case of a plan intended to be an HDHP, this means that (1) the out-of-pocket maximum cannot exceed the lower maximum applicable to HDHPs, and (2) the out-of-pocket maximum for an individual covered under a family plan cannot exceed the ACA maximum for self-only coverage. 

Example. An HDHP for 2016 has a family deductible of $13,100, with no other cost sharing. This is permissible because it does not exceed either the ACA out-of-pocket maximum limit ($13,700) or the lower HDHP out-of-pocket maximum limit ($13,100). However, the plan must further provide that no member of the family will be required to contribute more than $6,850 toward      Continue Reading...

The IRS has released the 2015 inflation-adjusted amounts for health savings accounts (HSAs) and high-deductible health plans (HDHPs). 

HDHP Minimums and Maximums. The minimum annual deductible for an HDHP will increase to $1,300 for self-only coverage and $2,600 for family coverage. The maximum annual out-of-pocket for an HDHP will increase to $6,450 for self-only coverage and $12,900 for family coverage.

Relationship to ACA Maximum Out-of-Pocket. The Affordable Care Act also sets out-of-pocket maximums for non-grandfathered plans. For 2014, the ACA maximum and the HDHP maximum are the same. But the amounts are indexed at different rates, and for 2015 they will be different. The ACA maximum will be $6,600 for self-only coverage and $13,200 for family coverage (compared to $6,450 and $12,900 for HDHPs). What does this mean? A plan designed to satisfy the ACA maximums will not necessarily qualify as an HDHP. It will need to satisfy the lower maximum applicable to HDHPs. 

Maximum HSA Contribution. The maximum annual contribution to an HSA for 2015 will increase slightly to $3,350 for an individual with self-only HDHP coverage and $6,650 for an individual with family HDHP coverage. Catch-up contributions for individuals age 55 and older are not inflation-adjusted and remain at $1,000 per year.

Recall that these annual maximums are prorated on a monthly basis for an individual who is covered under an HDHP for less than the full year. Also, special rules apply when one or both spouses have HDHP coverage, with the general effect of limiting the household to a single family-level      Continue Reading...

An internal IRS memorandum has provided much-needed clarification on the interaction between the new $500 carryover rule for health FSA plans and eligibility to make contributions to a health savings account (HSA). The conclusions in the memo are generally favorable, but employers wanting to both offer the carryover rule in a health FSA and allow employees to be HSA-eligible will need to carefully design their health FSA plans to take advantage.

Background. In guidance issued last year, the IRS provided limited relief from the use-it-or-lose-it rule that applies to health FSA plans by allowing for a carryover of up to $500 of unused amounts each year. (See my post here.) Among the open questions was how this carryover would affect an individual's eligibility to make HSA contributions and what steps, if any, could be taken to ensure an individual would be HSA-eligible if the individual had a carryover amount. In general, to be HSA-eligible, an individual cannot have any low-deductible health coverage, including coverage under a general-purpose health FSA.

Carryover Affects HSA Eligibility for Entire Year. In this recent memorandum, the IRS confirmed that an individual who has a carryover amount in a general-purpose health FSA is ineligible to contribute to an HSA for the entire carryover year, even after the individual exhausts the balance in the health FSA. For example, if at the end of 2014 an individual has $400 remaining in a general-purpose health FSA and that amount carries over to a general purpose health FSA for 2015, the individual will      Continue Reading...

The IRS has provided an expected, but welcome, clarification (see Notice here) regarding the impact of providing no-cost preventive care services under a high-deductible health plan. 

Background. To be eligible to contribute to a health savings account (HSA), an individual must be covered under a qualifying high-deductible health plan (HDHP) and must not be covered under any low-deductible coverage, other than permitted coverage. Permitted coverage incudes coverage for preventive care services within the meaning of Internal Revenue Code Section 223(c)(2)(C). 

Health Care Reform. Under health care reform, non-grandfathered health plans are required to offer specified preventive care services without cost sharing. This rule applies to non-grandfathered plans that otherwise meet the requirements to be an HDHP. But the preventive care services required under health care reform are not quite the same as preventive care services described in guidance under Code Section 223(c)(2)(C). And, of course, there cannot be a deductible. So we have wondered: Will compliance with the preventive care mandate under health care reform risk causing a plan to no longer qualify as an HDHP?

Guidance. The assumption has been that the IRS would not view preventive care services provided in accordance with health care reform as impermissible low-deductible coverage. Otherwise HDHPs could effectively no longer exist, unless they remained grandfathered.

That assumption has now been confirmed: "[A] health plan will not fail to qualify as an HDHP under section 223(c)(2) of the Code merely because it provides without a deductible the preventive care health services required under section 2713 of the PHS Act to      Continue Reading...

The IRS has released the 2014 inflation-adjusted amounts for health savings accounts (HSAs) and high-deductible health plans (HDHPs). The changes are not large, but most of the key metrics will see some increase.

HDHP Minimums and Maximums. The minimum annual deductible for an HDHP will remain unchanged at $1,250 for self-only coverage and $2,500 for family coverage. The maximum annual out-of-pocket for an HDHP will increase to $6,350 for self-only coverage and $12,700 for family coverage.

>>Why do we care? Whether health coverage qualifies as HDHP coverage is important because an individual must have HDHP coverage to be eligible to contribute to an HSA.

>>Interaction with health care reform. These amounts relate only to compliance with the HSA requirements. Health care reform will impose further limits on deductibles and out-of-pocket maximums beginning in 2014 (see prior coverage here), and plans will need to satisfy those requirements in addition to the conditions necessary to be an HDHP.

Maximum HSA Contribution. The maximum annual contribution to an HSA for 2014 will be $3,300 for an individual with self-only HDHP coverage and $6,550 for an individual with family HDHP coverage. Catch-up contributions for individuals age 55 and older are not inflation-adjusted and remain at $1,000 per year.

Recall that these annual maximums are prorated on a monthly basis for an individual who is covered under an HDHP for less than the full year. Also, special rules apply when one or both spouses have HDHP coverage, with the general effect of limiting the household to a single family-level HSA      Continue Reading...