IRS Announces 2018 HSA Contribution Limits – But Will This Announcement be Moot by 2018?

As it does this time each year, the IRS announced the inflation adjusted amounts for Health Savings Accounts (HSAs).   For calendar year 2018, an individual with self-only high-deductible health plan coverage will be able to contribution $3,450 to an HSA (up from $3,400 in 2017).  An individual with family high-deductible health plan coverage will be limited to contributing $6,900 (up from $6,750 in 2017).   However, it is possible that these announced new limits will never be put into effect.

The American Health Care Act (the “Bill”), which was passed by the House of Representatives earlier this month, would change the way the HSA contribution limits worked if it becomes law.  The Bill provides to increase the HSA contribution limit so that it equals the maximum out-of-pocket limit in high-deductible health plans.   This increased limit is seen as a favorable change for participants in high-deductible health plans, which are become more and more popular, as it would allow a participant to contribute enough money to his or her HSA each year to pay for all expenses incurred prior to the point at which the high-deductible health plan is required to pay 100% for all covered expenses.  Of course, a participant could still have other medical expenses not covered by the health plan, but this would help to close the gap on the contribution limit and out-of-pocket maximum limit.

Other changes that the Bill makes to HSAs is that it would allow both spouses to make catch-up contributions to the same HSA, it reduces the tax penalty for HSA distributions on amounts not used for qualified medical expenses from 20% to 10% and it permits HSAs to be used to purchase over-the-counter medications (which was the law prior to the Affordable Care Act).  While the changes proposed to HSAs in the Bill would almost certainly be seen as favorable by plan participants and employers alike, there is no certainty that the Bill will become law or that whatever bill, if any, is passed by the Senate will contain these same provisions.