Workforce: Little Change for IRS Limits on HSAs, but Employers Still Seek Innovation
The IRS has announced its 2019 health savings account limits, and although very few changes were made from 2018’s limits, that doesn’t mean that innovation in HSAs and high-deductible health plans aren’t on employers’ agenda.
Between 2018 and 2019, the annual HSA contribution limit for an individual increased from $3,450 to $3,500 and for a family increased from $6,900 to $7,000. The maximum out of pocket for HDHP for an individual increased from $6,650 to $6,750 and for a family increased from $13,300 to $13,500.
Kim Buckey, health compliance expert and vice president of client services at DirectPath, a personalized health care benefits education and transparency services firm, doesn’t expect employee usage of HSAs and HDHPs to change. Employees tend to focus on the premium rather than the total cost of the plan, and they should learn to think of HSAs as more than just a short-term funding mechanism, she said.
“More education is needed around how HDHPs and HSAs work if employers seek to drive enrollment in these plans,” she said. “Employees tend to focus on those big numbers — the high deductible and the account limits — and shut down.”
According to the Employee Benefit Research Institute, with the health care costs and life spans rising faster than inflation rates, a couple could need $273,000 for health care in retirement, according Tom Matarazzo, head of health benefits and institutional retirement investments at Bank of America Merrill Lynch. An increase in the contribution limit of the tax-efficient HSA will allow people to save more money for future medical expenses.
“The continued increase in contribution limits shows that the government continues to see tremendous value in HDHP and the HSA as savings vehicle for medical expenses and should give benefit professionals and organizations continued confidence that HSAs are going to continue to see tremendous growth in the marketplace,” he said.
As HSAs have become common in benefits plans, the IRS’s guidance for raising limits every year is integral to many employers’ strategies and what employees will see at open enrollment, said Mike Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions.
“This guidance suggests that cost sharing is not going to go up significantly because of the limits,” he said. “It could be that some employers were not at those limits already and they could still push up the cost-sharing in their HDHPs.”
Having said that, he added, there is concern in the employer community about how quickly they should move up the cost sharing in their HDHPs, especially because of concerns about lower-paid workers. For these employees, a lot depends on whether the HDHP is the only health plan available or just one option among many.
“There has been a movement to more employers offering HSA-compatible HDHPs as their only option, and in those instances, they have to be even more sensitive to lower-paid workers,” he said.
A new term that surfaced recently in the benefits community is ALICE, or “asset limited, income constrained, employed,” he added. A recent study by the United Way ALICE Project found that 43 percent of households don’t earn enough income a month to pay for the basics like food, housing, child care and transportation, let alone high deductibles for medical necessities.
The fact that the IRS individual-contribution limit hasn’t changed much is good for this population of employees, Thompson said. Employers can also be sensitive to this population by offering alternative plan design options other than the HDHP.
This is an area that continues to evolve, he said. “There has been proposed legislation that has bounced around to potentially modify the rules around HSA-compatible HDHPs and essentially liberalize them in a way that employers could be more flexible in those designs.” For example, the Bipartisan HSA Improvement Act was introduced March 2 and pushed for HSA-compatible HDHPs to cover certain chronic disease management services and medications prior to hitting the deductible.
Although these proposed rules have not been formally considered yet, advocates in the industry and lobby groups are pushing for it to move forward. “It ties into this very issue of how to make these HSA-compatible health plan more aligned with a value-based benefit design,” Thompson said.
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(Andie Burjek is an associate editor at Human Capital Media.)