IRS announces 2009 inflation adjustments for Health Savings Accounts

The IRS has announced the annual inflation-adjusted rise to the limits on deductible contributions to a health savings account (HSA). The base limit on contributions themselves will rise to $3,000 for 2009, up from a limit of $2,900 for 2008. This limit applies to an individual with self-only coverage under a high-deductible health plan (HDHP).

The annual limit for deductible contributions for an individual with family coverage under a HDHP will rise to $5,950 for 2009, up from $5,800 for 2008. The deduction limits for self-only and family coverage are adjusted for inflation.

Individuals who are 55 and older may also make a catch-up contribution of $1,000, up from $900 in 2008. This increase is mandated by statute. The catch-up amount will remain at $1,000 after 2009.

HDHPs coupled with HSAs are reported to be an affordable solution for employers to manage health care costs. Distributions from an HSA that are used for qualified medical expenses are tax-free, making HSAs extremely taxpayer-friendly. Premiums for HDHPs are lower than for comprehensive health insurance, and employees enrolled in an HDHP arguably have more control over their health care dollars.

Other HDHP requirements

A HDHP must have a deductible of a stated minimum for both individual and family coverage. The plan also must limit out-of-pocket expenses paid by the individual or family members for covered benefits.

These limits are also adjusted for inflation. For 2009, an HDHP must have an annual deductible of at least $1,150 for a plan providing individual coverage, and $2,300 for family coverage. These amounts increased from $1,100 and $2,200, respectively, for 2008.

The HDHP must cap out-of-pocket expenses (including deductibles, copayments, and other amounts, but not premiums) at $5,800 for a plan providing self-only coverage, and at $11,600 for family coverage. These amounts increased from $5,600 and $11,200, respectively, for 2008.

Please feel free to call this office if you have any questions about the desirability of an HSA for your business. While the new inflation-adjusted limits apply to 2009, setting up an HSA and dismantling an existing health-care arrangement takes some advance planning to maximize benefits.

(Rev. Proc. 2008-29)