2020 IRS Limits for HSA and HDHP Deductible and Out-of-Pocket

The IRS released the inflation-adjusted amounts for 2020 relevant to HSAs and high deductible health plans (HDHPs). The table below summarizes those adjustments and other applicable limits.

Out-of-Pocket Limits Applicable to Non-Grandfathered Plans

The ACA’s out-of-pocket limits for in-network essential health benefits have also been announced and have increased for 2020.

Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit within family coverage, if the family out-of-pocket limit is above $8,150 (2020 plan years) or $7,900 (2019 plan years). Exceptions to the ACA’s out-of-pocket limit rule are available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans). A one-year extension of transition relief was recently announced extending the transition relief to policy years beginning on or before October 1, 2020, provided that all policies end by December 31, 2020.

Next Steps for Employers

As employers prepare for the 2020 plan year, they should keep in mind the following rules and ensure that any plan materials and participant communications reflect the new limits:

• HDHPs cannot have an embedded family deductible that is lower than the minimum HDHP family deductible of $2,800.
• The out-of-pocket maximum for family coverage for an HDHP cannot be higher than $13,800.

All non-grandfathered plans (whether HDHP or non-HDHP) must cap out-of-pocket spending at $8,150 for any covered person. A family plan with an out-of-pocket maximum in excess of $8,150 can satisfy this rule by embedding an individual out-of-pocket maximum in the plan that is no higher than $8,150. This means that for the 2020 plan year, an HDHP subject to the ACA out-of-pocket limit rules may have a $6,900 (self-only)/$13,800 (family) out-of-pocket limit (and be HSA-compliant) so long as there is an embedded individual out-of-pocket limit in the family tier no greater than $8,150 (so that it is also ACA-compliant).

Long-term benefits

One of the best benefits from an HSA is the long-term advantage of being able to carry over balances year after year and let it build up for medical expenses in retirement. But, one of the key points that your employees should know is that if they use the funds in their HSAs for purposes other than qualified medical expenses, they have to pay a 20% penalty.

The website Investopedia recommends that your employees:

• Max out their HSA contribution each year. If they do so, the amount they can save over the long term only grows through compounding.
• Hold off on spending contributions now, and try to not use HSA funds for current medical expenses.
• Make sure they only use the money for qualified medical expenses, so they don’t have to pay penalties of 20% plus regular income tax on their withdrawals.
• Invest contributions for the long run. For example, if you’re currently invested in a mix of 80% stocks and 20% bonds, you should probably invest your HSA that way, too.
• Use the account once they’re 65 or older. An added benefit to waiting until you’re at least 65 to spend your HSA balance is that the 20% penalty for withdrawing funds for purposes other than qualified medical expenses doesn’t apply. But, you will have to pay income tax if you don’t use the funds for qualified medical expenses.

Have questions?

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Beth Olender
Beth Olender is an Account Manager at UBF Consulting helping clients manage their Human Resources, Recruiting, Benefits and Wellness programs. When not working Beth enjoys spending time with her family and friends, weekend get-a-ways, book club, zumba classes, wine tasting, and daily walks with her friendly golden-doodle.