IRS Sets 2018 HSA Contribution Limits

iStock-636732058_fjrqzpHealth savings account caps rise $50 for self-only plans, $150 for family coverage.  The amount that individuals may contribute annually to their health savings accounts (HSAs) for self-only coverage will rise by $50 next year. For HSAs linked to family coverage, the contribution cap will rise by $150.

In Revenue Procedure 2017-37, issued May 4, the IRS provided the inflation-adjusted HSA contribution limits effective for calendar year 2018, along with minimum deductible and maximum out-of-pocket expenses for the high-deductible health plans (HDHPs) that HSAs must be coupled with.

These rate changes reflect cost-of-living adjustments, if any, and rounding rules under Internal Revenue Code Section 223.

“The contribution limits for various tax advantaged accounts for the following year are usually announced in the fall, except for HSAs, which come out in the spring,” explained Harry Sit, CEBS, who edits The Financial Buff blog. Due to a mild uptick in inflation and rounding rules, the 2018 HSA limit will have small increases, he noted.

A comparison of the 2018 and 2017 limits is shown below:

2017 HSA Contribution Limits:

Contribution and Out-of-Pocket Limits for Health Savings Accounts and High-Deductible Health Plans
  2018 2017 Change
HSA contribution limit (employer + employee) Self-only: $3,450
Family: $6,900
Self-only: $3,400
Family: $6,750
Self-only: +$50
Family: +$150
HSA catch-up contributions (age 55 or older)* $1,000 $1,000 No change**
HDHP minimum deductibles Self-only: $1,350
Family: $2,700
Self-only: $1,300
Family: $2,600
Self-only: +$50
Family: +$100
HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) Self-only: $6,650
Family: $13,300
Self-only: $6,550
Family: $13,100
Self-only: +$100
Family: +$200
* Catch-up contributions can be made any time during the year in which the HSA participant turns 55.
** Unlike other limits, the HSA catch-up contribution amount is not indexed; any increase would require statutory change.

Age 55 Catch Up Contribution

Account holders who will be 55 or older by the end of year can contribute an additional $1,000to their HSA. “If you are married, and both of you are age 55, each of you can contribute additional $1,000,” Sit said. But there’s a catch, he added.

An HSA is in an individual’s name—there is no joint HSA even when the plan provides family coverage—so only an account holder age 55 or older can contribute the additional $1,000 in his or her own name. “If only the husband is 55 or older and the wife contributes the full family contribution limit to the HSA in her name, the husband has to open a separate account for the additional $1,000. If both husband and wife are age 55 or older, they must have two HSA accounts if they want to contribute the maximum,” Sit said.

[SHRM members-only HR Q&A: Are employer contributions to an employee’s health savings account (HSA) considered taxable income to the employee?]

Not All High-Deductible Plans Are HSA Eligible

Besides a high deductible, to qualify as an HDHP, a health insurance plan must not offer any benefit beyond preventive care before those covered by the plan (individuals or families) meet their annual deductible. “An otherwise high deductible plan fails the HSA qualification when it tries to be nice and it gives you some benefits before you meet the deductible,” Sit explained. For instance, if the plan provides coverage in the following areas before the individual or family satisfies their deductible, it is not HSA-eligible.

  • Prescription drugs. Plans may not cover nonpreventive prescription drugs with only a co-pay before an individual or family meets the annual deductible.
  • Office visits. Excluding preventive care such as physical checkups or immunizations, plans may not cover office visits with only a co-pay, without having to meet the annual deductible first.
  • Emergency. Plans may not cover emergency services with a co-pay outside the deductible.

Besides the minimum deductible, the out-of-pocket maximum of an HSA-eligible plan also can’t be higher than an inflation-adjusted number published by the IRS every year. “If your plan has a high deductible and a high out-of-pocket maximum, higher than the IRS published number, it’s also not HSA-eligible,” Sit said.

Coverage of Adult Children

While the Affordable Care Act (ACA) allows parents to add their adult children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that an employee whose 24-year-old child is covered on her HSA-qualified health plan is not eligible to use HSA funds to pay that child’s medical bills.

If account holders can’t claim a child as a dependent on their tax returns, then they can’t spend HSA dollars on services provided to that child. Under the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendant of these) who:

  • Has the same principal place of abode as the covered employee for more than one-half of the taxable year.
  • Has not provided more than one-half of his or her own support during the taxable year.
  • Is not yet 19 (or, if a student, not yet 24) at the end of the tax year, or is permanently and totally disabled.

Affordable Care Act Limits Differ

There are two sets of limits on out-of-pocket expenses that employers should keep in mind, which can be a source of confusion.

Starting in 2015, the Department of Health and Human Services (HHS) established annual out-of-pocket or cost-sharing limits under the ACA, applying to essential health benefits covered by a plan (grandfathered plans are not subject to the ACA’s cost-sharing limits).

The ACA’s annual out-of-pocket maximums have been slightly higher than the IRS’s out-of-pocket limits on HSA-qualified HDHPs. To qualify as an HDHP, a plan must comply with the lower out-of-pocket maximum for HDHPs.

HHS published its 2018 ACA out-of-pocket limits in the Federal Register on Dec. 22, 2016, in itsNotice of Benefit and Payment Parameters for 2018 final rule.

“The ACA requires the out-of-pocket maximum to be updated annually based on the percent increase in average premiums per person for health insurance coverage,” explains an ACA compliance bulletin by the Stellar Benefits Group in Solon, Ohio, which provides an overview of the HHS’s 2018 updates.

Below is a comparison of the two sets of limits.

 

2018

2017

Out-of-pocket limits for ACA-compliant plans (set by HHS)

Self-only: $7,350

Family: $14,700

Self-only: $7,150

Family: $14,300

Out-of-pocket limits for HSA-qualified HDHPs (set by IRS)

Self-only: $6,650

Family: $13,300

Self-only: $6,550

Family: $13,100

 

Beginning in 2016, the ACA’s self-only annual limit on cost-sharing applies to each covered individual, regardless of whether the individual is enrolled in self-only coverage or family coverage.

By Stephen Miller, CEBS May 5, 2017

Affordable Care Act Compliance: IRS Releases Draft 2016 Employer Reporting Forms and Instructions

August 18, 2016 – Amy Gordon 

ACAOn August 2, the Internal Revenue Service (IRS) released revised draft Forms 1094-C and 1095-C, and draft instructions for completing these forms for the 2016 reporting year (see here). Although these are not final versions, it is important for employers to review the updates and changes from the 2015 forms and instructions as they prepare for the 2016 filings.

Background

The Affordable Care Act (ACA) created new reporting requirements under Sections 6055 and 6056 of the Internal Revenue Code (Code). The new rules require an applicable large employer (ALE) to report, on IRS Forms 1094-C and 1095-C, information about offers of health insurance coverage to full-time employees (FTEs) and the provision of minimum essential coverage (MEC). The Form 1094-C is also referred to as the “authoritative transmittal.” For 2016, an ALE is generally an employer with 50 or more FTE equivalents. Under Code Section 6056, an ALE must annually file with the IRS a report listing the offers of coverage made to its FTEs during the reporting year. In addition, ALEs must furnish a related statement of coverage information to FTEs. Under Code Section 6055, employers (including ALEs) who provide MEC under self-insured plans must also report MEC information for each individual covered under the employer’s self-insured plan. ALE status is determined on a controlled group basis, and each member of the controlled group is an “ALE Member” with an independent responsibility to file a Form 1094-C and Form 1095-Cs. Generally, the reporting is required at the employer identification number (EIN) level.

Under Code Section 6055, employers that are not ALEs must report MEC information on Forms 1094-B and 1095-B. Although these forms were also revised recently, draft instructions for completing these forms have not yet been released.

Highlights of Changes

While the draft 2016 Forms 1094-C and 1095-C and related instructions are similar to the 2015 forms and instructions, there are several notable changes, including the following:

  • Forms 1094-C/Authoritative Transmittal: The draft instructions clarify that each ALE Member should only file one authoritative transmittal, even if multiple Forms 1094-C are filed by the ALE Member. The draft instructions contain examples illustrating this requirement. An authoritative transmittal should not be filed on behalf of an aggregated group of ALE Members. An ALE Member’s contact person on the Form 1094-C may be different than the contact information on the Form 1095-C.
  • Required Form 1094-C and Form 1095-C Corrections: The draft instructions revise the list of items requiring a corrected Form 1094-C and 1095-C. Under the list in the draft instructions, an ALE Member must file a corrected Form 1094-C authoritative transmittal if the original transmittal contained an error in the name or EIN of other ALE Members of the ALE controlled group, and changes the requirement that a corrected Form 1095-C be filed due to an error in premium amount on the original Form 1095-C to a requirement that a corrected Form 1095-C be filed due to an error in the “Employee Required Contribution” on the original.
  • Employee Required Contribution: The draft instructions include the new term “Employee Required Contribution,” defined as the employee’s share of the monthly cost for the lowest-cost self-only minimum essential coverage providing minimum value that is offered to the employee by the ALE Member. The instructions further clarify that the employee share is the portion of the monthly cost that would be paid by the employee for self-only coverage, whether paid through salary reduction or otherwise.
  • Transition Relief: In 2015, “Section 4980H Transition Relief” exempted ALE Members with non-calendar year plans and 50-99 FTE equivalents from penalties under Code Section 4980H, and for ALE Members with 100 or more FTE equivalents, decreased the requirement to offer health coverage to FTEs from 95 percent of FTEs to 70 percent of FTEs. For 2016, this transition relief only applies for non-calendar year plans, and only for months in 2016 that fall within the plan year that commences in 2015. The Qualifying Offer Method Transition Relief is not applicable in 2016 under the draft instructions. Therefore, an employer may only use the Qualifying Offer Method in 2016 if the FTE had an offer of affordable, minimum value MEC for all 12 months of the plan year using the rate of pay affordability safe harbor.
  • Calculating FTE Count: The draft instructions provide additional guidance for calculating an ALE Member’s number of FTEs for purposes of completing Form 1094-C. Specifically, the instructions provide that an employee should be counted as an FTE for a month if the employee satisfied the definition of FTE under the monthly measurement period (if applicable) on any day of the month. If the ALE Member uses the look-back measurement method to determine FTE status, the ALE Member must include as FTEs individuals in stability periods during which the individual is to be treated as an FTE. The instructions also clarify that an ALE Member should use the Code Section 4980H definition of “full-time employee” to determine the number of FTEs for a month and not any other definition of the term used by the employer.
  • Form 1095-C Coding Changes: Various changes or clarifications were made to the Codes used on the Form 1095-C. For example, the draft instructions add new Code 1J and 1K for Line 14 to reflect “conditional offers of spousal coverage”, which are offers subject to one or more reasonable, objective conditions, including an offer to cover an employee’s spouse only if the spouse is not eligible for coverage under Medicare or a group health plan sponsored by another employer. 
  • Reporting COBRA Coverage: The draft instructions provide new guidance for reporting COBRA continuation coverage information on Form 1095-C. For employees who remain employed by an ALE Member after a reduction in hours, offers of COBRA coverage should continue to be reported as in 2015. For employees who terminate employment, coverage should be reported on the Form 1095-C as “no offer” (Code 1H) on Line 14 for each month the offer of COBRA coverage applies, and “employee not employed” (Code 2A) on Line 16.
  • Reporting Post-Employment (Non-COBRA) Coverage: The draft instructions provide that an offer of post-employment coverage to a former employee (or the former employee’s spouse or dependents) for coverage effective after the employee’s termination of employment should not be reported as an offer of coverage on Line 14. If the ALE Member is required to file a Form 1095-C for the former employee because the individual terminated in 2016 but was employed during one or more months in 2016, Code 1H should be used on Line 14, and Code 2A on Line 16 should be used for any month in which the post-employment offer of coverage applies.
  • Multiemployer Plans: The draft instructions continue for 2016 the multiemployer plan interim guidance from the 2015 reporting year. Employers with employees subject to a collective bargaining agreement can treat those employees as having received an offer of health coverage if under the agreement the employer is obligated to contribute to a multiemployer plan, and coverage under the multiemployer plan is affordable, has minimum value and offers dependent coverage>.

When to File

In general, employers must file Forms 1094-C and 1095-C by February 28 (March 31 if filing electronically) of the year following the calendar year to which the return relates. For the 2016 calendar year, the forms are required to be filed by February 28, 2017, or March 31, 2017, if filing electronically.

An ALE Member must furnish a Form 1095-C to each of its FTEs by January 31 of the year following to which the return applies. Forms 1095-C for the 2016 calendar year must be furnished by January 31, 2017.  

Next Steps

The 2016 forms are draft versions only and should not be filed with the IRS or relied upon for filing. Employers should review the updates and changes from 2015 instructions as they prepare for the 2016 filings.

Clinton win could pressure GOP to heal, not repeal, Affordable Care Act

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(Bloomberg) — Republicans in Congress have insisted the only way to fix the Affordable Care Act — Obamacare — is to repeal it. But with Barack Obama about to leave the White House, several Republicans sound willing to tweak it rather than kill it.

These Republicans suggest that a Hillary Clinton presidency could shift the debate over the ACA just enough to work on improvements with someone who isn’t the law’s namesake.

And it’s not just politics: Last week’s decision by one of the nation’s largest insurers, Aetna Inc., to withdraw almost entirely from the program’s insurance exchanges is the latest warning sign that Washington may have to act to prevent the law from unraveling. Many of the areas most affected by a potential loss of coverage are represented by Republicans.

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Checklist for Employers Considering Self-Funding

checklist-crop-600x338The new health benefits landscape has changed the way employers approach providing health insurance to employees. One strategy we’re seeing more of is the move toward self-funding health insurance. For a lot of employers, moving to a self-funded model makes sense. However, before they consider this route they need to ask the right questions and understand what they might be getting themselves into.

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Top 10 Catastrophic Claims for Self-Funded Employers

health-insurance-istock58545076small-crop-600x338There are a range of illnesses that can prompt a self-funded employer to make a claim on their stop-loss insurance policy, but a new study by Sun Life Financial Inc. finds that a majority (53 percent) of the $5.3 billion in such claims paid by insurers from 2012 to 2015 came from 10 ailments. Here are the top ailments that lead to self-funded employers making claims on stop-loss insurance policies. …
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