Health savings accounts (HSAs) have been in the news recently and for good reason. First introduced in 2003, the HSA is a tax-advantaged medical savings account available to taxpayers in the United States who enroll in a qualified high-deductible health plan (HDHP). Since their introduction, these savings accounts have proven to be valuable for participants as they offer a number of tax advantages for qualified health benefit expenses. Recent changes proposed within the Senate and House bills during the effort in 2017 to repeal and replace the Patient Protection and Affordable Care Act (ACA) are supporting even further expansion of HSAs, creating even more of an advantage. With these changes, HSAs stand to compete with other standard retirement savings mechanisms, such as tax-deferred 401(k) savings plan contributions, potentially even pushing them into the forefront.
The tax code places certain annual limits on contributions to HSAs, as well as on the HDHP’s deductible and out-of-pocket maximum. For individual coverage for 2018, the maximum contribution to an HSA is $3,450, the minimum deductible is $1,350, and the maximum out-of-pocket limit is $6,650. These limits are doubled for family coverage. The standard advantages for HSA participants have not changed since they were first introduced in 2003:
• Contributions to HSAs are tax-exempt.
• Those same contributions can be invested and any investment income and appreciation are also tax-exempt.
• Withdrawals are tax-exempt as long as participants use them to pay for qualified medical expenses, such as doctor’s visits, prescription drugs, and dental care.
• HSA funds roll over and accumulate year to year if they are not spent. They are owned by the individual.
• HSA plan contributions are not subject to the Federal Insurance Contributions Act (FICA) tax whereas 401(k) plan contributions are.
The overall share of the U.S. economy devoted to healthcare spending reached almost 18% in 2015. As a result, methods for cost reduction are getting increased attention. The new administration under President Trump identified provider price transparency as one of its key healthcare reform goals. Until now, disclosure of provider rates has been very limited, which is due to the confidential nature of this information and concerns with provider collusion. However, rising trends, coupled with the demand for increased consumerism by employer plan sponsors, have started to move the transparency needle a bit. The following provides an overview of price transparency, including the primary drivers in the self-insured market and a short list of employer considerations.
What does price transparency means?
In terms of the self-insured market, price transparency means making information more readily available to consumers. This will allow them to make better-informed decisions based on current health status. Several carriers and independent companies have created tools to assist employees with “demystifying” medical rates in a consumer-centric manner. These tools allow employees to price-shop for a given service by provider, as well as factor in current benefits to estimate their out-of-pocket costs.
What factors are driving the need for transparency in the self-insured market?
The proliferation of high-deductible health plans (HDHPs), reference-based pricing, and narrow or custom networks all place a greater burden of cost sharing and decision-making on the employee and employer.
The Internal Revenue Service (IRS) recently published Revenue Procedure 2017-37, which provides the inflation-adjusted amounts for health savings accounts (HSAs) for calendar year 2018. The updated limits specify the maximum annual contributions to HSAs that may be tax-deductible, as well as the minimum deductibles and the maximum out-of-pocket expenses allowed under qualifying high-deductible health plans (HDHPs).
The table below reflects the 2018 and 2017 values:
The “catch-up” contribution amount of $1,000 for individuals aged 55 or older was set by law and has not changed since 2009.
Annual out-of-pocket expenses include the HDHP’s deductibles, copayments, and coinsurance, but not premiums paid by plan participants.
Employers that sponsor HSAs and HDHPs should review their programs and communications materials and plan for the updated limits for 2018.
For additional information about the 2018 updated HSA and HDHP limits, please contact your Milliman consultant.
With the release of the September 2013 Consumer Price Index (CPI) by the U.S. Bureau of Labor Statistics, the Social Security Administration (SSA) and the IRS have announced cost-of-living adjustment (COLA) figures for Social Security and retirement plan benefits, respectively, for 2014. The 2014 adjusted figures for high-deductible health plans (HDHPs) and health savings accounts (HSAs) included in this Client Action Bulletin were released by the IRS earlier this year and are provided here for convenience.
With the release of the September 2012 Consumer Price Index (CPI) the Bureau of Labor Statistics, the Social Security Administration (SSA), and the Internal Revenue Service (IRS) have announced cost-of-living adjusted figures for Social Security and retirement plan benefits, respectively, for 2013.
The 2013 adjusted figures for high-deductible health plans (HDHPs) and health savings accounts (HSAs) included in this Client Action Bulletin were released by the IRS earlier this year and are provided here for convenience.
This post was also published at RetirementTownHall.com.