The IRS announced new inflation-adjusted Health Savings Account (HSA) contribution limits and High Deductible Health Plan (HDHP) limits for 2013. The new limits reflect cost-of-living adjustments permitted under the Internal Revenue Code.
An HSA is a tax-exempt trust or custodial account set up with a qualified HSA trustee to pay or reimburse certain qualified medical expenses. An HSA can only be established for the benefit of an eligible individual who is covered under a high deductible health plan and has no other health coverage. An employee with an HSA may not be enrolled in Medicare and may not be claimed as a dependent on anyone else's tax return.
Contributions made to an HSA are not taxable income to the participant. Contributions remain in the HSA account from year to year until they are used, and earnings on the HSA amounts accumulate tax free. Distributions from the HSA may also be tax free if they are used to pay qualified medical expenses. An HSA is portable and is not tied to a single employer.
An HDHP, which is required for HSA participation, has a higher annual deductible than other plans, but does limit the maximum out of pocket amount that the participant must pay for covered expenses.
The new limits for HDHPs and HSAs, effective January 1, 2013, are as follows:
- The maximum annual contribution to a self-only HSA for HDHP coverage increases from $3,100 to $3,250.
- The maximum annual contribution to a family HSA for HDHP coverage increases from $6,250 to $6,450.
- The age 55 and over annual catch up contribution remains at a $1,000.
- The minimum self-only HDHP deductible increases from $1,200 to $1,250.
- The minimum family HDHP deductible increase from $2,400 to $2,500.
- The maximum self-only HDHP out-of-pocket expense amount increases from $6,050 to $6,250.
- The maximum family HDHP out-of-pocket expense amount increases from $12,100 to $12,500.
An employer that offers an HSA and HDHP should make sure that plans and systems account for the new limits. Employers with HSAs should be mindful that if a health flexible spending account plan is offered, an employee who has an account balance remaining at the end of the plan year that goes into a grace period, the remaining FSA balance may preclude participation in an HDHP/HSA arrangement as it will be considered "other coverage" thereby removing the participant from HDHP/HSA eligibility.