While EBRI researchers have reported slower growth rates in recent years, more than 40% of HSA enrollees opened their accounts in just the past two years. Other recent projections, in fact, expect the value of HSA accounts to grow from $54 billion in 2018 to nearly $75 billion in 2020. Proposals floating around Washington could expand the list of HSA-eligible expenses as well as the age at which seniors must stop contributing to their HSA. Proposals like these would make HSAs even more valuable in the future.
Since 2007, adults ages 18 to 64 with employment-based coverage have increasingly chosen High Deductible Health Plans (HDHP), both with and without Health Savings Accounts (HSA), over traditional plans.
In 2017, the number enrolled in HDHPs without an HSA rose to 24.5%, while HDHPs with HSAs rose to 8.9%. Some employers are choosing to only offer HDHPs, helping shift employees away from traditional plans.
It’s undeniable: the cost of healthcare is rising and as a result it’s getting harder for your clients to pay for the care their employees need. Traditional health insurance policies aren’t right for everyone, and strong alternatives have emerged. Consumer Driven Health Plans can put the power back in the hands of members. Health Savings Accounts (HSAs) create a financial incentive to spend dollars wisely, because unspent dollars accumulate tax-free in their own personal accounts. This encourages consumers to shop around, compare prices and providers, and select the medical services that are most important for them.
Let’s take a closer look at HSAs:
What Are HSAs?
A HSA is a tax-free account in which funds can be deposited by individuals, employers or both to pay for out-of-pocket health care expenses (including medical, vision or dental expenses under Section 213(d) of the Internal Revenue Code), that may not be reimbursable by their individual or employer-sponsored health plan.
How Do I Know If My Client Is Eligible to Offer HSAs?
If your client currently has a high deductible plan that includes HSA in the name, they’re eligible! If your client’s plan name doesn’t include HSA, encourage them to consult with their insurer. The IRS has outlined that high deductible plans that offer a minimum annual deductible of $1,350 for individuals or $2,700 for families, as well as a maximum annual deductible of $6,650 for individuals and $13,300 for families, are eligible for HSAs.
Learn more about eligibility, see IRS Publication 969.
How Much Can Individuals Save in a HSA Annually?
As of 2018, members with individual coverage can save a maximum of $3,450 annually, while those with family coverage can save up to $6,900. For clients 55 or older by the end of the year, an additional $1,000 can be saved. This amount can be deposited as a lump sum or deposited over time.
For more details, including rules for married people, refer to IRS Publication 969.
HSAs are underutilized, but carry great benefits for individuals. If your clients aren’t utilizing a HSA because you haven’t recommended it as an option, you’re selling them short. Staying up-to-date on HSA qualifications and providing your clients with these and other cost saving techniques will set you apart from your competitors.
While it may not yet be widespread, some companies are looking for ways to use voice-activated assistants such as Siri and Emma to provide plan members with answers about annual contribution limits, account balances and other details regarding flexible spending accounts, HSAs, HRAs and more. Many hope that linking these intelligent assistants to a mobile app will make it easier than ever for members to get answers to questions when they need them.
We often hear of professional athletes succeeding under pressure by staying “in the moment” and remaining focused on the things that are within their control. This challenge can be applied to the uncomfortable position all of us find ourselves in today – somewhere between complying with existing laws and anticipating the unknowns coming from Washington.
While the IRS has relaxed enforcement of the individual mandate and acknowledged problems in the ACA reporting system, it has confirmed that an applicable large employer is still subject to an employer shared responsibility payment if it fails to offer coverage to 95% of its full-time employees. We continue to help large employers offer minimum essential coverage to avoid penalties, when appropriate, and track offers of coverage to comply with reporting requirements on IRS forms 1094 and 1095.
Other matters remain up in the air as well, including the so-called Cadillac tax on high-cost health plans and any changes in maximum contributions that may be made to HSAs, which would require legislative action. While any significant ACA repeal, replace or repair efforts appear to be overshadowed by the Administration’s interest in tax reform, we continue to monitor developments in healthcare reform and keep our clients and partners informed. It’s our way of doing what we can and remaining “in the moment.”
Health savings accounts are hot, with nearly two-thirds of respondents to a Plan Sponsor Council of America survey saying they believe that even those without a high deductible health plan should qualify. A benefit often cited by employers and employees alike is that HSAs can be a valuable part of one’s retirement strategy, since healthcare expenses are viewed as one of the largest people face in retirement.
The State of Benefits report from BenefitFocus shows that workers under the age of 26 are investing 20% more of their salary in HSAs than other generations. This is certainly due to the fact that nearly half have elected to enroll in high deductible health plans in 2017. While PPO plans remain very popular, especially among older adults, employee contributions to HSAs and FSAs are rising. A growing interest in savings among young people is another factor contributing to the increased popularity of HSAs.
The IRS and Department of Health and Human Services recently released new limits for contributions to HSAs and Health FSAs for 2017. Contributions by individuals to HSAs cannot exceed $3,400 in 2017, with the maximum family contribution remaining at $6,750, the same as 2016. Once again, a $1,000 catch-up contribution also applies.
Health FSA limits for 2017 have been increased by $50 from $2,550 per employee to $2,600. Health FSA transportation fringe benefits for parking, transit passes or vanpooling are remaining the same this year, with a limit of $255 for each.
The IRS began indexing affordability safe harbors to inflation last year. This year, minimum annual deductibles for High Deductible Health Plans (HDHPs) remain unchanged at $1,300 for individuals and $2,600 for families, with required out-of-pocket maximums remaining at a minimum of $6,550 for individuals and $13,100 for families.
While President Donald Trump has talked about several remedies for healthcare, one he mentions often is expanding the use of Health Savings Accounts (HSAs) – consumer directed accounts that are typically paired with high deductible health plans (HDHPs). Like flexible spending accounts (FSAs), they offer a convenient way to pay for out-of-pocket costs like doctor visit co-pays and other qualified medical expenses.
No Use It or Lose It Rule
One big advantage HSAs offer is that account balances are not subject to the Use It or Lose It rule that applies to FSAs – surplus funds can roll over from year to year. The IRS maximum annual contribution in 2017 is $3,400 for individuals and $6,750 for those with family coverage under a HDHP. Individuals age 55 and older can contribute an extra $1,000. HSAs can be used to pay for qualified medical expenses, while surplus funds can grow and be used in the future. Employer contributions, where available, can go a long way in meeting future qualified medical expenses. According to the 2016 Devenir HSA Market Survey, nearly a third of all funds contributed to HSAs in 2015 came from employers, with the average employer contribution being approximately $850.
A Triple Tax Advantage
A HDHP with an HSA can make it easy to set aside pre-tax dollars through payroll deductions. Individuals can also fund an HSA with after-tax dollars, which can be taken as a tax deduction on their personal tax return. Finally, all contributions accumulate tax free and can be withdrawn tax free to pay for future qualified medical expenses, including in retirement. No federal tax is due on funds contributed to a Health Savings Account, and many states follow the federal tax law.
Looking ahead, we know that healthcare costs will continue to rise and the need to engage employees will grow. Regardless of actions taken by the new administration, we believe HSAs are a great way to help employees save for future medical expenses and better understand the importance of cost and quality in the process.