Earlier this year (2017), it looked like the GOP effort to repeal and replace Obamacare was dead. And even though current prospects are only slightly brighter, the passage of the American Health Care Act (AHCA) signals a willingness in Washington to at least consider a serious effort.
Nothing will change for the 2017 tax year as a result of the legislation. Having said that, there are some significant changes to health savings accounts (HSAs) that employers and their payroll departments need to be aware of. One change is already in effect; the remaining three only go into effect if the AHCA is signed into law in its current form.
Higher Limits for HSAs
Regardless of the legislative process in Washington, the IRS has announced higher limits for HSAs for the 2018 calendar year. Beginning in 2018, individuals providing their own health insurance coverage can contribute a maximum of $3,450 to an HSA. That is an increase of $50 over 2017. Individuals providing family coverage will see their annual contribution limit increase from $6,750 in 2017 to $6,900 in 2018.
It should be noted that these contributions only apply to individuals who provide self-coverage through a qualifying high deductible plan as defined by the IRS. For the purposes of the higher limits in 2018, the IRS defines a high deductible plan as one with an annual deductible of no less $1,350 for individual or $2700 for family coverage. There are also limits on the amount of out-of-pocket expenses individuals and families can incur and remain within the guidelines.
Potential AHCA Changes
If the legislation currently making its way through Congress becomes law without any major changes, it will expand the use of HSAs to provide payment for healthcare services. The idea is to give consumers more control over how they pay for their healthcare by expanding the use of the accounts. To that end, there are three provisions to be aware of:
- Higher Contributions – The legislation calls for doubling the amount of money individuals could contribute to their HSAs regardless of whether they are insuring themselves or their families.
- Non-Medical Withdrawals – GOP legislators also want to cut the penalty for non-medical withdrawals to 10%. The lower penalties only apply to people younger than 65.
- Prescription Medications – Lastly, the legislation removes the current restriction that does not allow consumers to use HSA money to purchase over-the-counter medications. All medications, both prescription and nonprescription, could be paid for by HSA funds.
As an employer, you should note that any of your workers already enrolled in a qualifying high deductible plan are eligible to contribute to a health savings account provided there is no other health insurance policy in place (e.g., coverage from a spouse's plan) to pay related expenses. You can contribute to your employee accounts if you choose to, with no rollover limit.
We will have to wait to see if the GOP can work all the bugs out of the AHCA in order to get an acceptable bill to the president's desk. In the meantime, the Affordable Care Act (ACA) is still the law of the land. ACA compliance through the end of 2017 is mandatory.
BenefitMall is an ACA compliance expert more than capable of helping you ensure that your company is adhering to the law. If you need help with ACA compliance or setting up HSAs on behalf of your qualified employees, we would be more than happy to help. We offer a full range of payroll and benefits solutions to companies across the United States.