2018 HSA and HDHP Dollar Limits Released by IRS

By Michael Berwanger, JD, Director, Quality Management & Compliance

The IRS has released Revenue Procedure 2017-37, setting the 2018 dollar limitations for health savings accounts (HSAs) and high-deductible health plans (HDHPs).

The contribution, deductible and out-of-pocket limitations for 2018 are shown in the table below. All of these amounts are scheduled to increase from 2017. (The 2017 limits are included for reference.)

2018 HSA HDHP

For guidance on HSAs, please review the IRS frequently asked questions’ page at https://www.irs.gov/publications/p969/ar02.html.MedCost

This blog post should not be considered as legal advice.

 

Is Your Health Plan Affected by the Cadillac Tax?

One-Fourth of Employers Now Offering CDHPs to Avoid Tax

Employers continue to take action to avoid the looming excise or “Cadillac” tax on more expensive health insurance for their employees. This Affordable Care Act tax of 40% annually is currently set to take effect in 2020, but it is already having a major impact.

A 2015 Mercer study found that total health benefits cost averaged $11,635 per employee.[i] Cadillac taxThis average amount exceeds the Cadillac tax’s threshold of $10,200 for individuals, and would trigger the 40% tax on benefits above the threshold. And small employers are seeing higher increases in medical, dental and other health benefits than large employers.

Employers Turn to
Consumer Plans                                             

For the first time, 25% of covered employees are now enrolled in Consumer-Driven Health Plans (CDHP). Large employers of 20,000 or more employees have added CDHPs the fastest (73%). A projected 34% of employers with 50+ employees will be subject to the excise tax in 2020 if they make no changes to their current health plans.

 Cadillac tax

 

High-Deductible Health Plans (HDHP) are a type of Consumer-Driven Health Plans. Employers are saving an average of 18% with an HSA-eligible HDHP instead of a traditional Preferred Provider Organization (PPO) plan.[ii]

One key reason that employees are researching medical costs in advance for services such as maternity care, joint replacements and Emergency Room visits. A 2015 Consumer Health Insights’ survey showed that 22% always talked to others about costs or searched websites for information.[iii]

Employees who have a telemedicine option in their health plans can choose a more appropriate level of Cadillac taxcare for certain respiratory infections, fevers and nausea (see “Treatment Alternatives to the Emergency Room”). Choosing the right level of care reduces time away from work, boosting productivity. And employees save unnecessary dollars from their own pockets.

Some employers offer pricing transparency tools such as HealtheReports™ which compares costs for a complete procedure. Employees can review local facilities that offer mammograms, colonoscopies, X-rays and other services. HealtheReports also lists comments from members about their recommendations for health care organizations.

A New Era in Health Care

CDHP plans require a shift in thinking about medical spending. In traditional plans, employees are used to handing over their insurance card and paying a small copay.

PiggyBankIt can come as a jolt to employees to realize that CDHP coverage begins with paying expenses up to a higher deductible before insurance kicks in. For this reason, employers must proactively educate employees when introducing CDHP options.

Our next blog will detail key steps for employers to take in providing tools for smart decision-making. Employers who can manage staff expectations with a balanced understanding of the changing health care industry will build a productive partnership with your team.MedCost

 

[i] “With the Excise Tax in Their Sights, Employers Hold Health Benefits Cost Growth to 3.8% in 2015,” Mercer Global, November 19, 2015, http://www.mercer.com/newsroom/national-survey-of-employer-sponsored-health-plans-2015.html (accessed August 8, 2016)

[ii] Ibid.

[iii] “Debunking Common Myths about Healthcare Consumerism,” McKinsey & Company, December 2015, http://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/debunking-common-myths-about-healthcare-consumerism (accessed August 11, 2016)

More Employers Are Choosing This Health Plan

Cost & Government Regulations Are Major Factors

If you’re like most employers, covering the costs of your employees’ health care is a major concern. Expenses for employee hospitalizations, chronic diseases and drug costs are threatening to swallow up annual profits for businesses.

Employer-sponsored health premiums rose 203% between 1999 and 2015.[i] This is why more employers are choosing high-deductible health plans (HDHP), as the graph below shows. Is it possible to manage health care costs and still do business?

HDHP

 

What Is an HDHP?

A high-deductible or consumer-driven health plan has lower premiums and higher deductibles than traditional insurance plans.[ii] Instead of copays, a covered employee would pay health costs until the deductible is met.

Many companies offer a Health Savings Account (HSA) or a Health Reimbursement Account (HRA) that offers significant tax advantages for both employers and employees. The HDHP combined with HSA or HRA contributions can shelter income from taxes while helping to keep premiums low.

HDHP

Benefits

How can your Human Resource department explain this shift in benefits, when only 12% of adults have a basic understanding of health terms?[iii] Here are some real benefits to tell employees when migrating to an HDHP:

  1. “Your income tax will be lower.” Employees contributing to an HSA will shelter that income from federal taxes. This can add up to 39.6% in savings, depending on the tax bracket. Can anyone say “free money”? Especially when companies add their contributions to an HSA if an employee participates in the program.

2. “You will have more control over how you spend your health dollars.” One reason HDHPs are also called “consumer-driven” is because employees have choices about where they shop services. If the same treatment for a respiratory infection can be obtained by a telemedicine call instead of the family doctor, out-of-pocket savings can really add up. And many employers offer price comparisons for services that allow smarter choices before getting treatment.

3.  “You will have an automatic nest egg for health expenses.” It’s not easy to save, but payroll deductions can ease planning for costs. And the beauty of HSAs is that employees take this account with them, even if they change jobs. HRAs reimburse qualified medical expenses up to a fixed amount each year — another tax-free savings funded by employers, which can be rolled over to be used in subsequent years.

Summary

Employer health benefits, health care, employee claimsIn this tumultuous era of health care, employees are gaining an increasing amount of financial responsibility. This gives smart employers the opportunity to treat your staff as partners in decision-making.

Educating your employees is a key foundation to bridging the transition to HDHPs as a benefits option. The next blogs will provide important steps to make that transition successfully, and how to manage expectations during the change.

 

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[i]  “Recent Trends in Employer-Sponsored Health Insurance Premiums,” Kaiser Family Foundation, January 5, 2016, http://kff.org/infographic/visualizing-health-policy-recent-trends-in-employer-sponsored-health-insurance-premiums/ (accessed June 16, 2016).

[ii] High Deductible Health Plan (HDHP), HeathCare.gov Glossary, https://www.healthcare.gov/glossary/high-deductible-health-plan/ (accessed June 29, 2016)

[iii] Quick Guide to Health Literacy Fact Sheet, http://health.gov/communication/literacy/quickguide/factsbasic.htm (accessed June 29, 2016)