The IRS has announced the cost-of living adjustments to the applicable dollar limits for health savings accounts (“HSAs”), high deductible health plans (“HDHPs”) and excepted benefit health reimbursement arrangements (“HRAs”). By law, these limits are indexed annually to adjust for inflation.
Background. Under Internal Revenue Code Section 223, HSAs are tax-favored accounts that individuals can use to pay medical expenses. HSAs are subject to a variety of rules that determine account holders’ eligibility to contribute, the taxability of withdrawals and the HDHP coverage that must be paired with HSAs.
HSA contributions may only be made by or for individuals who enroll in HDHPs, and HSA-compatible HDHPs must satisfy certain requirements, including minimum annual deductibles and maximum out-of-pocket (“OOP”) expenses.
NOTE: The HDHP out-of-pocket maximum includes in-network deductibles, copayments and coinsurance, but does not include premiums or out-of-network service expenses.
Under the Affordable Care Act, excepted benefits are types of coverage not included in a traditional health plan. An excepted benefit HRA allows employers to finance additional medical care, such as vision or dental coverage, coinsurance and copayments for individual health insurance coverage, short-term limited-duration insurance, or other health care costs not covered by their primary group plan.
NOTE: Excepted benefit HRAs cannot be used to reimburse individual health insurance coverage premiums, group health plan premiums (other than COBRA or other group continuation coverage), or Medicare premiums. However, an excepted benefit HRA can be used to reimburse premiums for individual health insurance coverage or group health plan coverage that consists solely of excepted benefits.
Revenue Procedure 2022-24. For 2023, the HSA contribution limit for a self-only HSA is $3,850 (a $200 increase from calendar year 2022) and $7,750 for a family HSA (a $450 increase from calendar year 2022).
To qualify as an HDHP in 2023, a plan must have a minimum annual deductible of at least $1,500 for self-only coverage (a $100 increase), and $3,000 for family coverage (a $200 increase). The maximum OOP expenses permitted for an HDHP is $7,500 for self-only coverage (a $450 increase) and $15,000 for family coverage (a $900 increase).
For plan years beginning in 2023, Revenue Procedure 2022-24 sets the maximum amount that employers may contribute to an excepted benefit HRA at $1,950 (a $150 increase from 2022).
Takeaway for Employers. Employers are advised to begin planning for updating payroll and plan administration systems to reflect the 2023 cost-of-living adjustments. In addition, employers should be sure to incorporate the 2023 limits into all relevant participant communications, such as open enrollment and communication materials, plan documents and summary plan descriptions.
Revenue Procedure 2022-24 is available at: https://www.irs.gov/pub/irs-drop/rp-22-24.pdf