Tag Archives: HSA

2019 HSA Contribution Limits

May 14, 2018

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The IRS announced inflation-adjusted Health Savings Account limits for 2019 in Revenue Procedure 2018-30. They also announced minimum annual deductible and maximum annual out-of-pocket thresholds for 2019.

* The IRS announced they would continue to allow the original limit to stand for the remainder of 2018 despite the mid year reduction to $6,850.

 

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IRS Extends Relief for Those Affected by 2018 Family HSA Contribution Maximum Change

April 26, 2018

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In early March the IRS announced a change in the family HSA contribution maximum for 2018. As previously discussed, the Tax Cuts and Jobs Bill changed the way the IRS calculates benefit contribution maximums resulting in the 2018 family HSA contribution maximum changing from $6,900 to $6,850.

The IRS announced today that taxpayers with family coverage under a High Deductible Health Plan (HDHP) may continue to use the $6,900 limit for the rest of 2018. The IRS recognized the $50 reduction would “impose numerous unanticipated administrative and financial burdens” including the cost of adjusting cafeteria plan contributions for employers allow pre-tax HSA contributions.

This announcement is a little late for many who have taken steps to adjust their contributions. The new guidance provides ways for HSA holders to recoup those “mistaken distributions” (the $50 difference) without penalty. However, HSA custodians are not required to allow individuals to repay mistaken distributions. If an individual has received a distribution from an HSA of an excess contribution based on the $6,850 limit, they may repay the funds to the HSA. Those funds will not be includable in the individual’s gross income, will not be subject to the 20% excise tax on excess contributions and will not need to be reported on Form 1099-SA or Form 8889.

Those individuals who received a distribution from an HSA of an excess contribution based on the $6,850 limit but choose not to repay the distribution to the HSA will not be required to include the amount in gross income or pay the 20% excise tax if the distribution is received on or before the individual’s tax filing deadline (including extensions of time).

The tax treatment described above will not apply to distributions from an HSA that are attributable to employer contributions if the employer relies upon the $6,900 limit. Then, the distribution must either be used to pay qualified medical expense or it must be includible in the employee’s gross income and subject to the 20% excise tax. Employers should consult tax advisors with any concerns regarding this IRS’s guidance.

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IRS Lowers 2018 Family HSA Contribution Maximum

March 6, 2018

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Late last year Congress passed the Tax Cuts and Jobs Bill into law. It contained a number of tax reforms including a change to the way the Internal Revenue Service (IRS) calculates cost of living increases. The IRS now has to calculate the increases using “Chained CPI.” The new method takes into account consumers switching to cheaper products which reduce the effect of inflation. As a result, Chained CPI results in lower cost of living increases than what we’ve previously seen.

These cost of living increases are used to calculate the HSA contribution maximums for the year. Due to the new calculation method, the IRS announced today the family HSA contribution maximum is reduced from $6,900 to $6,850. Health FSAs and other benefit limits are not impacted. The 2018 limits are as follows:

HSA/HDHP Limits 2018 2017 2016
HSA Contribution Limit (Self-Only) $3,450 $3,400 $3,350
HSA Contribution Limit (Family) $6,850 $6,750 $6,750
HSA Catch-up Contribution Limit (55+years) $1,000 $1,000 $1,000
HDHP Minimum Deductible (Self-Only) $1,350 $1,300 $1,300
HDHP Minimum Deductible (Family) $2,700 $2,600 $2,600
HDHP Maximum Out-of-Pocket (Self-Only) $6,650 $6,550 $6,550
HDHP Maximum Out-of-Pocket (Family) $13,300 $13,100 $13,100

Ultimately it is HSA holders’ responsibility to abide by the contribution maximums as they are individually owned accounts. Because it is so early in the year, most HSA holders likely haven’t contributed the maximum yet. If they have, they will need to speak to their tax advisors about a curative distribution, which can help avoid the 6% excise tax on excess contributions.

Employers should communicate the family HSA maximum contribution change to their employees, especially if they previously provided the old limit. HR departments will also need to check their payroll accounts and adjust any employee HSA contributions that would exceed the maximum.

In addition, limits for employer adoption assistance programs have changed. The maximum amount that can be excluded from an employee’s gross income for qualified adoption expenses dropped from $13,840 to $13,810 and the adjusted gross income threshold after which the adoption exclusion begins to phase out is lowered from $207,580 to $270,140.

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Telemedicine and Health Savings Accounts

October 12, 2017

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As health care costs continue to rise, so does the demand for cost-control strategies. One such strategy is telemedicine. Telemedicine is a service offered through many health insurance plans by which patients can consult with a doctor over the phone or through videoconference. Telemedicine doctors can often prescribe medication, thus eliminating the need for a trip to the doctor’s office. The trend has been gaining popularity in recent years and many anticipate continued improvements and evolutions of the service in the near future.

But how is telemedicine a cost-control strategy? Telemedicine can eliminate the need for visits to the emergency room, urgent care or the doctor’s office – which could save up to $6 billion annually by one estimate. Without the typical costs associated with in-person consultations such as rent, overhead, nursing staff, etc., telemedicine uses readily available technology to deliver consultations at a fraction of the cost.

How that reduced cost is paid, however, depends on the health plan offering telemedicine service. For a traditional preferred provider organization plan (PPO), co-pays are typically used to offset the cost of a doctor visit. Co-pays for telemedicine consultations would also be appropriate. The rules for high deductible health plans (HDHP), however, are very different.

A HDHP allows subscribers to contribute to a tax-advantaged health savings account (HSA). To be eligible to participate in an HSA, participants in a HDHP cannot receive any employer payment – directly or indirectly – for medical expenses before the deductible is satisfied. Indirect payments would include cost-sharing in the form of co-payments for consultations. The IRS has not directly addressed the issue of HSA eligibility and telemedicine. However, its guidance suggests that an employer offering a HDHP with an HSA and a telemedicine option should require the participants to pay fair market value of the telemedicine consultation. What is the fair market value of a telemedicine consultation? Who knows? It’s likely more than a co-pay but less than the network rate of a doctor’s office visit. Additional IRS guidance on this topic would be helpful, but until it’s issued, employers with HDHPs should be wary of “free” or co-pay telemedicine services.

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Are Consumer-Direct Health Plans Working?

February 22, 2017

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Qualified high deductible health plans (Q.H.D.H.P.), also known as “Consumer-Directed” plans, have been around for a number of years.  Enrollment in these plans has increased over the past decade.  Q.H.D.H.P. plans have a high deductible component which must be met before benefits are paid typically at 100%.  The minimum deductible amount is determined by the Internal Revenue Service (I.R.S) each year.  For 2016, the minimum deductible is $1,300 for individual and $2,600 for family.

According to the Kaiser Family Foundation, eight percent of employees were enrolled in a Q.H.D.H.P. in 2009. By 2015, enrollment had increased significantly to 24 percent.  During this period, out-of-pocket annual costs on average rose approximately 230 percent.   Surveys indicate about 46 percent of employees shoulder a plan deductible of $1,000 or more.

Analysis of the healthcare utilization of employers implementing high deductible plans shows the cost of care decreasing when followed over a 3 year period versus employers who do not implement these plans.

Part of the decrease in utilization comes from a larger portion of “first dollar” medical costs being paid by the employee because of the higher deductible. Another probable factor is plan participants are giving careful consideration before obtaining medical services.  In fact, this consumer behavior was one of the purposes behind why these plans were created along with lowering insurance premiums.

The “Consumer-directed” focus of Q.H.D.H.P. plans is based upon the assumption patients will research the most cost-effective ways to handle their treatment.  If a patient decides to move forward with care then the hope is they will conscientiously shop for the best possible price on their healthcare services.  Some patients may ultimately decide to defer or forego certain medical care.

Shopping for the best price on healthcare sounds great in theory, but can be more difficult to achieve in practice. However, tools and resources are available to assist.  It is important for plan participants to have the knowledge on how to access.

Finding a good deal on prescription drugs tends to be simple. There are many websites and apps available to help.   As an example, GoodRx allow consumers to enter the name and dosage of a medication and receive a list of pharmacies offering discounted pricing in their immediate area. In addition, many large retailers such as Walmart, Kmart, Sam’s Club and Costco advertise flat and discounted co-pays for basic medications.

Conversely, shopping for medical services is much more complex as compared to the transaction of buying a 30 day supply of pills. However, websites do exist for finding the geographically adjusted fair market price for a particular medical procedure.  These websites include Healthcare Bluebook, Clear Health Costs and New Choice Health.   You may be comforted in knowing the reasonable price for your heart transplant is $125,916, but you probably have no clue on what to do next.   And you would not be alone in this lack of knowledge.

As consumers, we are accustomed to shopping online for the lowest price on items such as electronics, hotels or airline tickets. But when it comes to healthcare, most people do not give a second thought to how much it costs.  The idea of price shopping health service is gaining traction though.  Many patients do not realize they ultimately have control over where medical services are performed.  Most usually rely only upon their physician’s advice.

You have probably seen commercials from a local imaging center which includes dramatizations of patients learning how much an imaging exam is going to cost at their local hospital. They later sigh in relief as they learn the imaging center pricing is much less expensive and gives same day results.  They happily announce they are going to tell their doctor they want their imaging exam to be done at this center.

This imaging center has an online tool for patients to obtain a price quote beforehand for a particular exam with discounts given for upfront cash payments. Most healthcare providers do not yet offer services in this manner, but this practice is catching on with the popularity of consumer-directed plans.

There is an open question on whether consumer-directed plans are actually working to reduce health expenditures or are they simply causing patients to forgo medical care today that will become high dollar expenses later.

If the latter ends up being true, our health care delivery system is potentially looking at a tremendous spike in costs given the sheer number of patients covered under these plans. In any event, the lower medical trend being seen in these plans today must be acknowledged.  Something is obviously going right with this plan design.

Surveys indicate many patients enrolled in consumer-directed plans have limited knowledge on how the plan even works. Under the mandates of the Affordable Care Act (A.C.A.), preventative care is offered with $0 co-pays or very little out-of-pocket cost.  In fact, the preventative care benefit is a base benefit of consumer-directed plans even if the A.C.A. mandates goes away.  However, many enrollees have no idea this benefit is included and may skip preventative care.  As a result, health conditions that could be caught and treated early may not be found until late in the game. Routine colonoscopy at age 50 is a perfect example.  A colon polyp found today may prevent major surgery and perhaps even death from colon cancer down the road.

Employees may not fully understand how the health savings account (H.S.A.) component works alongside the high-deductible plan. This would seem a simple concept, but it should not be taken for granted that all participants have sufficient knowledge.  Employees may not understand the funds held in their H.S.A. represent real dollars.

These funds can be used to pay for medical expenses but are also allowed to accumulate (with potential for return on investment) if they are not used.   The contribution maximum for 2017 is $3,400 for single coverage and $6,750 for family.  Employees need to know the account stays with them as they change jobs, medical plans or eventually retire.  The money in the H.S.A. can be withdrawn without penalty at age 65 similar to an I.R.A..

Employees (and employers) realize a savings on their monthly contributions to the group medical plan because the premiums are lower on an HDHP plan. Savings are also realized from the full tax-deductibility of their employee contributions into their H.S.A..  Many employers also make a contribution into an employee’s account.  Employees and employers alike can save an additional 7.5% in F.I.C.A. taxes.

So what can be done today to encourage the continued forward momentum and cost savings of consumer directed plans into the future?

  • Provide education to plan participants to assure they fully understand the benefits of the plan especially preventative care. Be sure your employees understand the health savings account component and the significant savings potential it offers.
  • Make members aware of online tools which are helpful in finding the most cost effective care.
  • Offer lower cost alternatives to incent members to receive needed healthcare.   Telemedicine services and retail clinic care both offer members value by providing lower cost care. According to Mercer’s Survey of Employer Sponsored Health Plans, savings to the member can be significant.   A usual telemedicine visit charge is about $40 and retail clinics are about $60. Both of these yield savings as compared to $125 for a physician office visit.

In summary, consumer directed health plans are a familiar component in today’s employee benefits arena. To assure their continued success, it is important for plan sponsors, payers and providers to remain diligent in staving off any unplanned negative effects so that true long term cost savings can continue to be realized.

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2017 HSA Contribution Limits

June 17, 2016

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The IRS has issued inflation-adjusted Health Savings Account figures for 2017. Revenue procedure 2016-28 provides as follows:

Annual contribution limitation for 2017

For calendar year 2017, the limit on deductions, for an individual with self-only coverage under a high deductible health plan, is $3,400. For calendar year 2017, the limitation on deductions, for an individual with family coverage under a high deductible health plan, is $6,750.

High deductible health plan for 2017

For calendar year 2017, a HSA qualified high deductible health plan (HDHP) is defined, as a health plan with an annual deductible that is not less than $1,300 for self-only coverage, or $2,600 for family coverage, and the annual out-of-pocket (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,550 for self-only coverage, or $13,100 for family coverage.

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2016 HSA Limits

May 14, 2015

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Last week the IRS announced the 2016 contribution limits for health savings accounts (“HSA”).  For calendar year 2016, employees with self-only coverage may deduct $3,350 from income to contribute to HSAs; those with family coverage may deduct and contribute $6,750.

HSAs may only be used in conjunction with a high deductible health plan.  For 2016, a high deductible health plan with an annual deductible of at least $1,300 for self-only coverage or $2,600 for family coverage.  The out-of-pocket maximums must not exceed $6,550 for self-only coverage or $13,100 for family coverage.

The brief IRS publication can be found here.

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2015 Benefit Limits

January 13, 2015

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The start of 2015 brings numerous changes to the benefits world, both large and small.  While the Individual Mandate has received the majority of publicity, there are many smaller changes that deserve attention.  Here are a few of those new limits:

ACA Individual Mandate Tax

The Individual Mandate is the national requirement that individuals have health care coverage or they face a tax that increases each year.  This is one of the two parts to the Affordable Care Act aiming to increase healthcare coverage.  The two parts are the Individual Mandate and the Employer Mandate.  Employers deal with the Employer Mandate, or Pay-or-Play Mandate, and not the Individual Mandate.

Penalty for noncompliance for 2015:

  • Greater of $325 per uninsured person OR 2% of household income

*The final penalty will not exceed the national average cost of bronze coverage for the household.

401(k) Plan Limits and Thresholds

The maximum elective deferral dollar limit:

  • 401(k) plan: $18,000
  • SIMPLE 401(k) plan: $12,500

The maximum catch-up contribution dollar limit:

  • 401(k) plan: $6,000
  • SIMPLE 401(k) plan: $3,000

FSA Contribution Limit

FSAs, Flexible Spending Accounts, allow for individuals to use pre-tax dollars to pay for health care costs.  It can be set up through a cafeteria plan of an employer and allows the employee to use specified money to pay for qualified medical expenses.

  • The FSA contribution limit for 2015: $2,550

Maximum DCAP Amount

DCAP, or the Dependent Care Assistance Program, allows employees to pay for certain dependent care expenses with pre-tax dollars.

  • If you are married and filing separately: $2,500
  • If you are not married and filing alone: $5,000

HSA

An HSA, or Health Savings Account, combines a high deductible health plan (HDHP) with a tax-favored savings account.  Money in this savings account can help pay the deductible and once the deductible is met, the insurance starts paying.  Whatever money left in the savings account will earn interest and is the employee’s to keep.

The HDHP Minimum Annual Deductible:

  • Self-only: $1,300
  • Family: $2,600

The HDHP Out-Of-Pocket Maximum:

  • Self-only: $6,450
  • Family: $12,900

HSA Maximum Contribution Limit:

  • Self-only: $3,350
  • Family: $6,650
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2015 HSA Limits

April 28, 2014

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The IRS has issued inflation-adjusted Health Savings Account figures for 2015. Revenue procedure 2014-30 provides as follows:

Annual contribution limitation for 2015.

For calendar year 2015, the limit on deductions, for an individual with self-only coverage under a high deductible health plan, is $3,350. For calendar year 2015, the limitation on deductions, for an individual with family coverage under a high deductible health plan, is $6,650.

High deductible health plan for 2015.

For calendar year 2015, a HSA qualified high deductible health plan (HDHP) is defined, as a health plan with an annual deductible that is not less than $1,300 for self-only coverage, or $2,600 for family coverage, and the annual out-of-pocket (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,450 for self-only coverage, or $12,900 for family coverage.

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The Psychology of Consumerism, Part II

April 14, 2014

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We have all heard by now that consumerism is the way to reduce healthcare costs, not just in your own family, but in the healthcare marketplace. You’ve probably learned by now the benefits of High Deductible Health Plans and Health Savings Accounts. We also know there are as many opinions about healthcare as there are healthcare plans available. Some consumers really like the flexibility the Health Savings Account brings into their lives and others are perfectly happy paying a set copay amount when visiting their physicians, which is why there are so many options for consumers and employers on the market today.

What we’ve failed to ask our consumers is not only how they feel about consumerism as a philosophy, but also how do they make that mental switch from a copay-driven, flat cost world into the world of making financial healthcare decisions on their own? There are millions of consumers each year who make this transition from a traditional PPO copay plan into the world of High Deductible Health Plans. We can make assumptions on why this switch is happening (monetary decisions, family decisions, etc.) but how do they move into that realm and stay there?

Most people will attribute the word “habit” to something negative like smoking or biting your nails, but there are good habits too – like exercising and eating well. You’ve probably heard it takes at least 21 days to break a habit or to form a new habit. In the world of healthcare, breaking the copay habit or the habit of not having to think about the cost of that new medication your doctor prescribed you can be a little more daunting.

The key piece of forming this new healthcare decision habit is practice and planning. If you can plan for a change and gather all the knowledge you think you’ll need for this new decision making process, you’ll be better set for success in the long run. For example, if you know you always used to pay $20 for your brand name medication and now you’re facing down the full cost of the prescription, you’re more than likely going to begin doing your research. Where can I go that will cost less? Can I get samples from my doctor for a few months? Can I switch to a generic formulation? Once consumers are used to this new pattern of behavior, the research becomes to flow more easily for them.

Then, consumers can start to repeat this behavior with their doctors, hospitals and outpatient facilities. They will research which chiropractor are in network and have the best discounts with their carrier and so on. Habits are nothing more than worn-down paths in the brain similar to a trail through the woods. Once you do something long enough, you don’t even have to think about it. By forming these new habits, a consumer can save money, be more versed in their own healthcare and in the end reap the rewards of saving money by being enrolled in a more cost-effective plan and taking advantage of tax savings through their Health Savings Account.

It’s been conveyed to us who live in the healthcare space on a regular basis that consumers will research for hours about their new car or new television, but spend less than an hour a year when it comes to the way their health plan operates and how they can save money. There are many factors that can contribute to this enigma, but the main factor being there isn’t an easy way for most consumers to compare costs of care or medications. As HDHPs progress and become even more of a standard, this too will change, but in the meantime consumers need to take the reins of their own healthcare. This means asking questions, researching options and above all else, becoming educated. Once this is achieved, rewards can be seen by consumers.

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HSA Contribution Limits

January 9, 2014

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As a reminder for those with Qualified High Deductible Health Plans, the IRS has raised the contribution limits for Health Savings Accounts. For 2014 an individual can contribute $3,300 and a family can contribute $6,550. H.S.A. enrollees age 55 or over can also take advantage of a catch-up provision and contribute an additional $1,000. Funds can be used for most out-of-pocket medical, vision and dental costs. And, of course, the dollars accumulate if they’re not spent in the calendar year, because an H.S.A. is not a “use it or lose it” plan like some employer-sponsored cafeteria plans.

H.S.A. limits are raised annually. If you’d like more information, please go to: http://www.treasury.gov/resource-center/faqs/Taxes/Pages/Health-Savings-Accounts.aspx or ask your J.W.Terrill consultant.

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The Psychology of Consumerism

October 7, 2013

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Everyone wants the best healthcare available, but are you getting what you’re paying for? Consumerism is a current buzzword among many in the healthcare industry today, and why shouldn’t it be? Consumerism saves money, consumerism teaches people how to shop for their own healthcare, consumerism… is the next best thing. What we fail to ask ourselves is how consumers actually feel about it.

The old adage “if you bring a man a fish, he eats for a day; but if you teach a man to fish, he eats for life” is very true when speaking of consumerism. The very idea of consumerism is to teach the members of your healthcare plan to forage and hunt for the best deals when making their healthcare buying decisions. If you can do this, you’ve taught them for a lifetime. Before a few years ago when High Deductible Health Plans (HDHPs) became so popular in the marketplace, consumers rarely searched around for the best prices on their care, whether intangible (doctor’s visits, etc.) or tangible (prescriptions, durable medical equipment, etc.). You paid your copays and moved on with life. Today, if you care about keeping the most dollars in your Health Savings Account (HSA), you will do your own due diligence to find the best prices. Right? Maybe not – and that depends on the differences of each consumer’s personality and what’s important to them psychologically.

There are many factors that influence a consumer’s buying decisions: marketing, cost, social pressures, ease of purchase and perceived value. Each of these must align for the decision to purchase to be made.

Let’s think for a minute about the advertising of new prescription drugs in the marketplace. Consumers are flooded with print and television advertisements each and every day for the next best drug available. They see actors being more active, being less depressed and even computer animations of drugs being easily absorbed into someone’s system. A natural thought when you see this for the first time would be, “that must be the best because it’s the newest”. This is the beginning of the decision-making ball rolling toward making a purchase or even a change in purchases.

Let’s say you were taking a similar drug to that advertised. You might think your drug doesn’t do what the new one will. You might think now more people will start to begin using this new drug. This has been categorized as the “me too” effect (you might not want to be the guinea pig to begin taking the drug, but if you hear of a few others that are taking it, and like it, then you might lean that direction too). In your mind, you’ve now established doubt of the product you are taking, succumbed to social pressures around you, accepted the marketing tactics and have probably gotten a free sample from your doctor (thus checking the box for “ease of purchase”). After all these decision-altering forces line up, is pricing the final straw to say no? Probably not for most.

The decision to buy a higher-priced product hinges solely on perceived value. Your perception of what this drug will do for you, or how it will improve your life over a closely formulated generic, is tempting. Yes, it’s your health dollars and you can spend them how you choose, but the real question for plan sponsors is if consumers will make the best pricing decisions in a High Deducible marketplace. That answer is simple: no. Consumers will continue to make the decision most relevant to their family situation, no matter what the cost is.

The bottom line is this: cost isn’t necessarily the “bottom line”. This brings up another important question; aren’t we simply exchanging employer savings for more employee costs? If so, how is that impacting our workforce?

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