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More Benefit Limits Released for 2020 – Increases for HSAs and HDHPs

 June 3 2019     Diane Cross
The IRS has recently announced annual limits for 2020, increasing the Health Savings Account (HSA) maximum contribution limitations and increasing both the minimum deductible and out-of-pocket maximums for High Deductible Health Plans (HDHPs). With so many considerations, it’s easy to lose track of regulatory requirements. Following is a summary of those limits for 2020.

HDHP and HSA Limits

In order for an individual to contribute to an HSA, he or she must be enrolled in an HDHP meeting both a minimum deductible and maximum out-of-pocket threshold. Further, HSAs are subject to annual aggregate contribution limits from all sources. Limits for 2020 are below:

Type of Limit 2019 2020 Increase
HSA Contribution Limit Self only: $3,500 Self only: $3,550 Self only: $50
Family: $7,000

Family: $7,100

Family: $100

HSA Catch-up Contributions (age 55 or older)

$1,000
$1,000 No Change
HDHP Minimum Deductible Self only: $1,350 Self only: $1,400 Self only: $50
Family: $2,700

Family: $2,800

Family: $100

HDHP Maximum Out-of-pocket* Limit Self only: $6,750 Self only: $6,900 Self only: $150
Family: $13,500 Family: $13,800 Family: $300


Special Consideration: Embedded Deductibles

What is an embedded deductible?
With family coverage, an embedded deductible allows for coinsurance to apply for a specific individual if he meets the individual deductible, even if the family has not yet met the family deductible.

As a reminder, for the HDHP to remain an HSA-qualified plan, it cannot provide benefits until the required IRS minimum deductible is met (other than preventative care) for the level of coverage enrolled. Hence, why employers should ensure their deductibles are at least the required minimum deducible, so that co-insurance is not applied until the deductible is met. With that in mind, HDHPs with an embedded deductible must have the individual deductible at least $2,800 to remain an HSA-qualified plan (so that the minimum deductible for a family coverage is met before co-insurance applies). Otherwise, the HDHP could pay for claims before the $2,800 family coverage minimum deductible is met and would no longer be an HSA-qualified plan. Examples below help to explain.

Example 1: Darcy elects HDHP family coverage with an embedded deductible for 2020. Plan year begins January 1 and has $1,400 individual/$2,800 family deductibles. Darcy incurs $2,000 of medical expenses on January 15. With the embedded deductible, co-insurance will apply after Darcy pays $1,400. Per IRS, this plan is NOT an HSA-qualified HDHP, because claims were paid before the $2,800 deductible was met.

Example 2: Darcy elects HDHP family coverage with an embedded deductible for 2020. Plan year begins January 1 and has $3000 individual/$6000 family deductibles Darcy incurs $3500 of medical expenses on January 15. With an embedded deductible, co-insurance will apply after Darcy pays $3000. Per IRS, this plan IS a HSA-qualified HDHP, as NO claims were paid before the $2,800 deductible was met.

Employers should be mindful of these limits as they plan for the 2020 benefit plan year and may need to update plan documents and other relevant plan communications so that the 2020 limits are referenced. In addition, employers offering an embedded deductible must make sure the minimum deductible for HDHP self-only coverage is at least $2,800. The 2020 Health Flexible Spending Account (FSA) limits have not been released yet - be on the lookout for additional information later this year. If you have additional questions, please contact your HORAN representative.

*Out-of-pocket expenses include deductibles, co-payments, and other amounts (but not premiums).  As a reminder, the Affordable Care Act (ACA) also applies an out-of-pocket maximum on expenditures for essential health benefits, as discussed in our previous blog post Final Notice of Benefit and Payment Parameters for 2020