07 March 2018

2018 Family HSA Limit Reduced and Other HSA News

An unexpected consequence of last year’s tax reform legislation is that the family HSA contribution limit for 2018 has been reduced from $6,900 to $6,850.   Employers with high deductible health plans (HDHPs)  will want to notify enrolled employees as soon as possible to minimize excess contributions.

Here’s the background—various annual limits under the Internal Revenue Code are adjusted each year for changes in the cost-of-living.  The tax reform legislation enacted late last year changed the method of adjusting for inflation beginning in 2018 to a “chained CPI” approach which tends to produce lower cost of living increases.  The IRS recalculated various annual limits in light of the new rules.  Most of the limits were not adjusted as a result of this change.  However, the IRS made one key adjustment regarding the 2018 family HSA contribution limit, decreasing it from $6,900 to $6,850.

Employers with high deductible health plans will want to communicate this decrease in the limit to employees as soon as possible in order to avoid excess contributions by employees enrolled in family coverage.  If any employees enrolled in family HDHP coverage have already contributed $6,900 for 2018, they need to withdraw $50 and any related earnings.  The withdrawal is taxable.  And, if not withdrawn by April 15, 2019, the excess is also subject to IRS excise taxes.

Other HSA News

Employees are eligible to contribute to an HSA (and/or have the employer make HSA contributions on the employee’s behalf) as long as the employee is enrolled in an HDHP which satisfies certain requirements.  One of those requirements is that benefits generally can’t be provided before the employee satisfies the deductible under the HDHP.  However, preventive care is an exception to that rule.  While coverage for women’s contraceptives and sterilization is considered preventive for this purpose, male contraceptives and male sterilization do not qualify as preventive care.  The IRS has been made aware that some states are now requiring health insurance plans to cover male contraceptives and male sterilization without a deductible.  Such coverage compromises an individual’s HSA eligibility.  Under new transition relief, for periods prior to 2020, the IRS will not consider an individual to be HSA ineligible solely because the HDHP in which the individual is enrolled offers male contraceptive and/or male sterilization benefits with no deductible.  The transition period is intended to provide states with ample time to change their laws.  The IRS has requested comments on the new guidance.

If you have any questions about these HSA developments, please contact the authors or any other member of the employee benefits practice group.