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$50 Change in HSA Limit May Be More Costly Than First Thought

Members of Congress and industry groups are raising concerns that the simple $50 reduction in the 2018 health savings account family contribution limit may end up costing a lot more than first presumed.

Following enactment of the Tax Cuts and Jobs Act, the IRS announced March 5 Revenue Procedure 2018-18 that it is lowering the 2018 maximum family contribution limit for HSAs from $6,900 to $6,850, effective immediately. The change is a result from a provision in the legislation that modified the way that inflation-related adjustments in the tax code are calculated.

At first glance, the change didn’t seem like much. But upon closer inspection, the change could be costly for both participants and plan sponsors — employees who may have already contributed the previously announced 2018 family maximum of $6,900 will need to withdraw the excess contribution from the HSA by April 15, 2019, to avoid a 6% excise tax.

Reps. Mike Kelly (R-PA) and Erik Paulsen (R-MN), both members of the House Ways & Means Committee, along with the American Benefits Council (ABC) and the ERISA Industry Committee (ERIC), are raising concerns that adjusting the contribution limit in the middle of the tax year is imposing significant administrative burdens and confusion for plan sponsors and participants.

Among the issues is identifying which employees have already exceeded the contribution limit, as well as communicating the changes to participants.

“Imposing the new lower HSA contribution limit now, after the year has already begun, will require employers and service providers to undertake a range of administrative actions and employee communications related to their HSA-qualified health plans,” writes Kathryn Wilber, ABC’s Senior Counsel for Health Policy, in a letter to the Treasury Department. “These include systems changes to reprogram the lower limit and revising and distributing updated written and digital communications to employees to communicate the imposition of the new lower limit.”

Similarly, ERIC emphasizes that employers and insurers have already spent significant amount of money communicating with plan beneficiaries and will now have to spend more to communicate again to correct the previous communications. The group points out that some of its members estimate the costs of an additional communication alone to be $30,000-$100,000, while one plan sponsor estimated a $1 million price tag when factoring in communications, adjustments to contribution amounts, withdrawal of excess contributions, actions required by the HR department and other associated costs. Moreover, ERIC argues that it will be “hard to ensure beneficiaries take heed of additional communications.”

ABC notes that its plan sponsor and service provider members report that thousands of HSAs have already exceeded the new lower limit, and contends that the change was perhaps an “unintended consequence” that runs counter to congressional intent that any adjustments be announced well in advance of the calendar-year start date.

To alleviate the problem, the lawmakers and the industry groups are urging the Treasury Department and IRS to provide transition relief for 2018. “Because the IRS had already announced the 2018 HSA limits in May of 2017, and employees and employers had set contributions accordingly, we urge Treasury and IRS to provide transition relief for 2018 and not enforce the new lower limits in 2018,” Reps. Kelly and Paulsen urge in a letter to Treasury Secretary Steven Mnuchin.

The lawmakers further emphasize that delaying enforcement of the new HSA limit for a short time period is well within Treasury’s discretion and previous precedent set by the agency.