By: Joseph P. Yonadi, Jr. and Patrick J. Egan
2018 Family Coverage Contribution Reduced to $6,850
On March 5, 2018, the Internal Revenue Service (IRS) issued guidance that lowers the 2018 Health Savings Account (HSA) contribution limit for family coverage. Last year the IRS set the 2018 HSA contribution limit at $3,450 for individuals with self-only coverage, and $6,900 for individuals with family coverage. However, the 2018 maximum HSA contribution limit for family coverage has now been reduced by the IRS by $50 to $6,850. This change is set forth under Revenue Procedure 2018-18 and is effective immediately.
It should be noted that the maximum single coverage HSA contribution limit has not been revised, and remains at $3,450.
The recently passed Tax Cuts and Jobs Act (Act) legislation is the culprit behind the reduction to the maximum HSA family coverage contribution limit. As part of the Act, the IRS revised most of the Internal Revenue Code’s (Code) corporate and individual tax rates and changed certain dollar threshold indexing from the consumer price index to something called chained CPI-U. In short, chained CPI-U is a slower growing index rate which triggered the need to adjust the maximum HSA family coverage contribution limit by $50.
The practical impact of this change is that unless the IRS publishes transition guidance any employee who has fully funded his or her HSA under the prior $6,900 limit will be required to withdraw their excess contributions with earnings as taxable income. Presumably, employers with employees who have elected to contribute up to the prior eligible maximum contribution limit of $6,900 may reduce their employees’ election to the new maximum contribution limit of $6,850.
Importantly, however, employers, brokers and HSA-providers will likely have to make changes to their HR systems and revise employee communications that went out at the end of 2017 during open enrollment.
We will provide any updates when and if the IRS provides transition relief that may assist the administrative burdens caused by this change.
IRS Clarifies Male Sterilization and Contraceptives Not Considered Preventive Care
Additionally, on March 5, and as an answer to the growing State gender parity statutes, the IRS released Notice 2018-12. Many States piggybacked off of the Affordable Care Act’s requirement that employers provide female contraception and sterilization without cost-sharing by adopting laws requiring health insurance policies to also require no cost-sharing for male contraception and sterilization.
Generally, female contraception and sterilization are considered preventive care and not required to have a deductible and, therefore, may be paid from an HSA. However, a question remained whether States adding male contraception and sterilization would also be considered preventive care as part of gender parity initiatives. Notice 2018-12 puts to rest the question and provides that male contraception and sterilization is not preventive care. As such, for fully insured plans after January 1, 2020, a deductible is required for these treatments to be considered an HSA-compatible High Deductible Health Plan (HDHP).
Please note that transition relief has been granted for the 2018 and 2019 plan years for fully insured HDHPs that provide HDHP-HSA owners with the ability to deduct on a pre-tax basis male contraception and sterilization as preventive care.