IRS Announces Spike in 2023 Limits for HSAs and High-Deductible Health Plans %%-%% HR Services %%|%% Audax HR Services

IRS Announces Spike in 2023 Limits for HSAs and High-Deductible Health Plans

IRS Announces Spike in 2023 Limits for HSAs and High-Deductible Health Plans

Health savings account (HSA) contribution limits for 2023 are going up significantly in response to the recent inflation surge, the IRS announced April 29, giving employers that sponsor high-deductible health plans (HDHPs) plenty of time to prepare for open enrollment season later this year.

The annual inflation-adjusted limit on HSA contributions for self-only coverage will be $3,850, up from $3,650 in 2022. The HSA contribution limit for family coverage will be $7,750, up from $7,300. The adjustments represent approximately a 5.5 percent increase over 2022 contribution limits, whereas these limits rose by about 1.4 percent between 2021 and 2022.
 

In Revenue Procedure 2022-24, the IRS confirmed HSA contribution limits effective for calendar year 2023, along with minimum deductible and maximum out-of-pocket expenses for the HDHPs with which HSAs are paired.

 

Contribution and Out-of-Pocket Limits 
for Health Savings Accounts and High-Deductible Health Plans
  2023
 
2022
 
Change
HSA contribution limit (employer + employee)
 
Self-only: $3,850 
Family: $7,750
 
Self-only: $3,650
Family: $7,300
 
Self-only: +$200 
Family: +$450
 
HSA catch-up contributions (age 55 or older)
 
$1,000
 
$1,000
 
No change
(set by statute)
 
HDHP minimum deductibles Self-only: $1,500 
Family: $3,000
Self-only: $1,400
Family: $2,800
 
Self-only: +$100
Family: +200
 
HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) Self-only: $7,500 
Family: $15,000
Self-only: $7,050
Family: $14,100
 
Self-only: +$450
Family: +$900
 
Source: IRS, Revenue Procedure 2022-24.
 

Adjustments Reflect Inflation

Contribution limits for various tax-advantaged accounts for the following year are usually announced in October, “except for HSAs, which come out in the latter part of April or May,” explained Harry Sit, CEBS, who writes The Finance Buff blog. The contribution limits are adjusted for inflation (rounded to the nearest $50) annually, using the Consumer Price Index for All Urban Consumers for the 12-month period ending on March 31. The catch-up contribution amount, however, is fixed by statute.

HSA and HDHP limit increases “are released much earlier than other employee benefit limits so that insurance companies that offer high deductible health plans—which participants must enrolled in to make HSA contributions—can get their insurance products approved by state insurance regulators,” explained William Sweetnam, legislative and technical director at the Employers Council on Flexible Compensation (ECFC), which represents sponsors of account-based benefits plans

A Significant Jump

The higher limits for 2023 are “a significant jump, much higher than previous increases on an annual basis,” said Kevin Robertson, chief revenue officer at HSA Bank, which provides HSA administrative services.

The 2023 limits, he added, can be used by employers during open enrollment to encourage employees to start contributing to their accounts or to raise their current contribution rate. In addition, it may be catalyst for employers who don’t already contribute to employees’ HSAs to begin doing so, “even if it’s a nominal amount, a couple of hundred dollars or whatever.” Employer contributions, he noted, tend to heighten employees’ engagement with their accounts and enhance the perceived value of their health care benefits.

Robertson said he’s seeing more employers interested in matching employees’ HSA contributions, as they typically do with 401(k) retirement plans, using formulas similar to common 401(k) matches.

“We’re also seeing more employers consider making income-based contributions that favor lower-paid employers” who may need extra help paying health care costs under a high-deductible plan, he said.

Advanced Planning

The 2023 limits are “good to know for planning purposes,” ECFC’s Sweetnam said, “Employers generally start talking to their employees about making health care choices, and about these limits, during open enrollment season after the end of summer.”

But it’s not too early to plan ahead. “Employers are advised to begin updating payroll and plan administration systems to reflect the [upcoming year’s] cost-of-living adjustments,” advised the Boston-based Wagner Law Group. In addition, employers should incorporate the new HSA limits “into all relevant participant communications, such as open enrollment and communication materials, plan documents and summary plan descriptions.”

ACA’s Limits Differ

There are two sets of limits on out-of-pocket expenses for health plans, determined annually by federal agencies, which can be a source of confusion for plan administrators.

The Department of Health and Human Services (HHS) establishes annual out-of-pocket or cost-sharing limits for essential health benefits covered under an ACA-compliant plan, excluding grandfathered plans.

HHS issued the 2023 annual dollar limits on cost-sharing at the end of 2021.

The HHS’s annual out-of-pocket limits are higher than those set by the IRS. To qualify as an HSA-compatible HDHP, a plan must not exceed the IRS’s lower out-of-pocket maximums.

Below is a comparison of the two sets of limits:

Self-only: $9,100

Maximum out-of-pocket for HSA-qualified HDHPs (IRS)

Self-only: $7,500
 

Family: $15,000

Self-only: $7,050
 

Family: $14,100
 

The ACA’s self-only out-of-pocket maximum for essential health benefits applies to each individual in a nongrandfathered group health plan, regardless of whether the individual is enrolled in self-only or family coverage.

Excepted-Benefit HRA Maximum

For plan year 2023, Revenue Procedure 2022-24 also raises the maximum amount employers may contribute to an excepted-benefit health reimbursement arrangement (HRA) to $1,950, which is $150 higher than the 2022 amount of $1,800. Excepted-benefit HRAs are limited to paying for vision and dental coverage or similar benefits exempt from the ACA and not covered by the employer’s primary group plan.

 

Related SHRM Articles:

This content was originally published here.

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