With the introduction of healthcare requirements and penalties associated with the Affordable Care Act, as well as a sharp increase in premiums for traditional health insurance plans over the past few years, consumers have been looking for alternative options for healthcare coverage. One of the most popular forms of alternative plans is the health savings account, (or HSA), which balances costs by providing limited coverage with a higher deductible, but also allows the consumer to save funds, for medical use, tax-free. Contributions to HSAs are made on a pre-tax basis and grow tax-free over time. Even withdrawals from the HSA are free from tax, if used for qualifying health expenses, as part of a high-deductible plan.
Recent changes to the tax code will allow HSA policy owners to contribute even more money to their plans next year, free of taxes. Individual high-deductible HSA plans will see a pre-tax limit of $3,500, up $50 from the 2018 limit. Family plans will see the cap raised to $7,000, up $100 from the previous limit. Catch-up contributions, for workers age 55 and older, will remain capped at $1,000.
Changes in plan limits reflect the application of the Chained Consumer Price Index, or Chained CPI, which was implemented as part of the Tax Cuts and Jobs Act last December, and gauges inflation and its impact on HSA’s and other tax deductions. The Chained CPI replaces the previous CPI, and is considered by many economists to be more accurate and efficient, as it accounts for the substitution of new goods for previous, as prices increase. Critics, however, claim that this new measure simply slows rates of inflation, leading to lower cap increases for HSAs and other similar benefits.
After this new tax law was implemented, the IRS was forced to make adjustments to 2018 contribution limits. The cap for family HSAs was subsequently reduced from $6,900 to $6,850, however individual contributions were not affected.
For 2019, high-deductible plans are defined as plans with at least a $1,350 deductible for individuals and $2,700 for family plans, which is unchanged from 2018 limits. Plans must also cap out-of-pocket deductible and co-payment expenses at $6,750 for individuals and $13,500 for families, (an increase of $100 and $200 respectively, from 2018 levels).
It’s always hard to know exactly how changes in the tax codes will affect you and your family, so do some research if you’re unsure. Stay up to date with changes happening in the healthcare and tax reform fields as to get the most out of your dollars for yourself and your family.