Smart Benefits: HSA Contribution Limits Rise For 2014

Monday, May 13, 2013

Amy Gallagher, GoLocalWorcester Business/Health Expert

As healthcare costs continue to rise, consumers are looking even more to Health Savings Accounts, or HSAs.

Despite massive healthcare reform efforts, healthcare costs are continuing to surge so many consumers are taking matters into their own hands by opening Health Savings Accounts (HSAs).

First introduced in 2004, HSAs continue to gain popularity with both individuals and those enrolled in group coverage and, today, there are 15.5 million Americans enrolled, up from 13.5 million just a year ago.

New Limits

For most years since 2004, the IRS has approved increases to annual contribution limits. And 2014 will be no different.

Those with individual plans will be able to save up to $3,300 in 2014, up from $3,250 in 2013. Account holders with family medical coverage can save up to $6,550, compared to $6,450 this year. The catch-up contribution for those ages 55 or older will remain at $1,000.

HSA Requirements

To have an HSA, an individual must have a qualified, high-deductible health plan. The IRS sets the minimum deductible requirement for these plans at $1,250/$2.500, with typical deductibles ranging from $1,500 individual/$3,000 family up to $5,000 individual/$10,000 family. (According to United Benefit Advisors, the average deductible for a consumer-driven high deductible plan is $2,000/$4,000.)

HSA's Continued Appeal

Consumers are embracing HSAs for two reasons:

Premiums are lower in exchange for the high deductible health plans they are tied to. Money consumers save on premiums can help offset the high deductibles.
Any money saved in and withdrawn from these accounts is tax-free as long as it’s used for qualified medical expenses. In years when individuals’ medical expenses are low, they can save for future medical costs, as long as their additional annual contributions don’t exceed the IRS annual limits.

While there’s a trade-off between the higher deductibles and premium savings, to optimize the tax advantages, consumers often save the difference in their HSA. And people are saving: the average HSA account balance in 2013 is $1,879, up slightly from $1,807 in 2012.

A Planning Tool for Retirement

With HSAs, there’s tremendous opportunity to save for the future. Consumers who are thinking ahead toward the Medicare years when care will more likely be needed are earmarking money in these accounts to offset future expenses. Rather than erode 401(k) savings, which are tax deferred, HSA withdrawals are not taxable as long as they are used for qualified expenses. That’s why there’s a growing trend toward planning for retirement medical expenses using HSAs strategically with 401(k)s.

Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.

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