Cost-of-Living Adjustments Announced for HSAs and Affordability

In Revenue Procedure 2017-37, the Internal Revenue Service announced the inflation adjusted amounts for Health Savings Accounts (HSAs).

For calendar year 2018, the annual limitation on contributions to an HSA for an individual with self-only coverage under a high deductible health plan is $3,450, up from $3,400 in 2017. For calendar year 2018, the annual limitation on contributions to an HSA for an individual with family coverage under a high deductible health plan is $6,900, up from $6,750 in 2017.

For calendar year 2018, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage.

These amounts represent increases from the 2017 deductibles of $1,300 for self-only coverage and $2,600 for family coverage and out-of-pocket limits of $6,550 for self-only coverage and $13,100 for family coverage.

Interestingly, Revenue Procedure 2017-36 has decreased the affordability percentage from 9.69 percent for 2017 to 9.56 percent for 2018. Under the Affordable Care Act, employers with 50 or more full-time employees (including full-time equivalent employees) are subject to penalties if they do not offer affordable coverage.

The statute defines affordable as no more than 9.5 percent (indexed) of the employee’s household income. Since employers do not know the household income of every employee, the regulators provided three safe harbors employers can use:

  • Federal poverty level
  • Rate of pay
  • W-2 earnings

Unfortunately, there are issues with each safe harbor. The W-2 earnings safe harbor is unpredictable because employees might take unpaid leaves or work fewer hours than anticipated, making contributions unaffordable.

The other two safe harbors are predictable. The problem with the rate of pay safe harbor is that it can only be based on 30 hours a week, regardless of the number of hours an employee actually works. The problem with using the federal poverty level safe harbor is that it produces the lowest allowable amount of employee contributions.

The indexed 9.56 percent applies to plan years beginning in 2018.


John Garner

About John Garner

John Garner has over thirty five years of experience in employee benefits. He specializes in compliance, health care reform, the Health Insurance Portability and Accountability Act (HIPAA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), and the Employee Retirement Income Security Act (ERISA). He helps clients with life, health, and disability benefits, cost containment, flexible benefits, and claim consulting.

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