For business owners, it’s important to stay informed on the latest changes in the health care space, including the new limits for health savings accounts and high-deductible health plans going into effect next year.
The IRS has increased the health savings account 2019 limits from those of 2018. These changes will impact the amount you and your employees can contribute to these accounts and how your employees budget their health care.
Start educating your staff about the upcoming changes now so that everyone can plan ahead.
What Are HSAs and HDHPs?
As a quick refresher, health savings accounts (HSAs) allow employees to put a portion of their paychecks into savings accounts tax-free. When that money is later used for qualified medical expenses, it can also be withdrawn tax-free. And anything in the account that isn’t used grows tax-free, too. HSA contributions are typically taken out of an employee’s paycheck, just like 401(k) contributions. But employers can contribute to HSAs, too, with these contributions counting as business expenses.
HSAs are only eligible for use with qualified high-deductible health plans (HDHPs) also called consumer-driven health plans (CDHPs), which exchange high deductibles for lower monthly premiums. HSAs help employees put money away to meet those steeper deductibles.
HSAs are similar to flexible spending accounts (FSAs). However, FSAs can be used in conjunction with any health plan, not just HDHPs. You can contribute to both an HSA and an FSA in the same year. The current FSA contribution limit is $2,650 per year. This number isn’t slated to change in 2019.
2019 Limits vs. 2018 Limits
Every year, the IRS decides on new limits for how much money can be set aside in an HSA. This year, the limits are increasing. In 2018, employees and employers could contribute a total of up to $3,450 for individual coverage and up to $6,900 for family coverage. In 2019, those totals will increase to $3,500 for individual coverage and $7,000 for family coverage, according to the IRS. That’s an increase of $50 a year for individuals and $100 a year for family coverage.
HDHP limits are also changing, but only partially. The minimum annual deductible is staying the same: It will be $1,350 for individual coverage and $2,700 for family coverage in 2019, just like it was in 2018. But the maximum out-of-pocket expense is increasing. In 2018, the maximum out-of-pocket amount for expenses like deductibles, copayments and coinsurance was $6,650 for an individual HDHP and $13,300 for family coverage. For 2019, the maximum out-of-pocket expense is up $100 to $6,750 for an individual plan and up $200 to $13,500 for a family plan.
It’s also worth noting that the HDHP out-of-pocket limit is different than the Affordable Care Act limit, so don’t rely on the ACA as your only guide, the Society of Human Resource Management (SHRM) recommends.
Why These Changes Are Important
If you offer a high deductible plan, it’s important to know how the minimums are changing to ensure your plans will still qualify. Employees may value plans with lower monthly premiums more highly if they can use them with a well-funded HSA.
The HSA change is also important because it will affect how much you can contribute to your employees’ health savings accounts in the coming year, as well as how much is deducted from their payroll. Most employees will see a slightly increased payroll deduction to accommodate the increased HSA limit.
It’s important to keep track of changes to the law because employees who overcontribute to an HSA might face a 6 percent excise tax, according to SHRM. Employees who contribute more than their maximum during any year need to request a refund for their excess contribution, or else remove the excess contribution and add that amount back to their reportable tax income at the end of the year.
How to Communicate These Changes
First, sit down with your accountant to find out what adjustments need to be made in 2019 — typically an increase in payroll deductions. Then send a message to your staff notifying them of these payroll changes. Offer one-on-one meetings to answer questions and determine any changes your employees would like made to their payroll deductions.
Staying on top of the health savings account 2019 limits and high-deductible health plan 2019 limits is important for both your business and your employees. In 2019, employees will enjoy greater tax-free savings. While these changes are still months away, it’s best to communicate these changes now, so no one is caught by surprise.
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This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.