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IRS announces modest increases to HSA limits in 2020

Published on July 18th, 2019 by Triton Benefits & HR Solutions

In late May, the IRS announced that health savings account contribution limits would be increasing slightly in 2020, providing employers that sponsor high-deductible health plans with plenty of advance notice before open enrollment season begins later this year.

The IRS confirmed in Revenue Procedure 2019-25 that the annual limitation on HSA contributions for individuals with self-only coverage under an HDHP will increase by $50 to $3,550 for calendar year 2020. For individuals with family coverage, contribution limits will rise by $100 to $7,100 next year.

Both bumps represent a 1.5% increase in contribution limits, which are adjusted for inflation each year, based on the Consumer Price Index for All Urban Consumers for the 12-month period ending on March 31. The catch-up contribution limit for those over age 55, on the other hand, is fixed by statute, and will remain at $1,000 in 2020.

Though annual increases to HSA contribution limits are based on inflation rates, average health care costs continue to outpace inflation, meaning Americans continue to spend more out-of-pocket on medical expenditures each year.

Revenue Procedure 2019-25 also features changes to the minimum deductible and maximum out-of-pocket expenses for the HDHPs paired to HSAs. Minimum deductibles for self-only HDHP plans rise $50 from $1,350 to $1,400 for 2020, and increase by $100 for family HDHP plans from $2,700 to $2,800.

HDHP maximum out-of-pocket expenses in 2020 are $6,900 for self-only plans, representing a $150 increase, and $13,800 for family plans, up $300 from the previous year.

HSA use, employer contributions on the rise

HSAs have become an increasingly common benefit offering in recent years. A 2018 Employee Benefits survey conducted by the Society for Human Resource Management found that 56% percent of surveyed SHRM members offered their employees an HSA last year, a more than 10% increase from 2014.

Additionally, 37% of employers contributed to employees' HSAs, up 7% from 2015.

Over the same period, the size of employer contributions has also increased, while employee contributions have shrunk. The average employer contribution to employees' accounts among businesses that made contributions was $839 in 2018, up from $604 the previous year, according to HSA investment advisory firm Devenir's 2018 Year-End HSA Market Survey. The same data also showed that the average employee contribution among individuals who made them was $1,872 last year, down from $1,921 in 2017.

Companies should encourage HSA participants to fully exploit the modest increase in contribution limits for 2020 and, if financially able, contribute the full $3,550 for self-only coverage and $7,100 for family coverage. In addition to taking full advantage of the tax savings, contributing the maximum amount allows employees to best position themselves for the future and the rising costs of health care. Employers, for their part, can better attract and retain their employees by extending HSA contributions as a benefit to their employees. 

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