New 2021 Limits for HSAs and High-Deductible Health Plans

In the Revenue Procedure 2020-32, the Internal Revenue Service (IRS) announced the annual inflation-adjusted Health Savings Account (HAS) contribution limits for the 2021 calendar year. It also outlined the minimum deductible as well as maximum out-of-pocket expenses for the High-Deductible Health Plans (HDHPs).

The new HSA contributions for the coming year are as follows:

  • HSA maximum contribution levels – $3,600 for individuals, an increase of $50, and $7,200 for family HDHP coverage up from $7100 this year.
  • HDHP minimum deductibles – Remains unchanged at $1,400 for self-only and $2,800 for family coverage.
  • HDHP out-of-pocket maximums – The 2021 limit expenses which include deductibles, copayments, and coinsurance, are $7,000 for self-only and $14,000 for family coverage, up from $6,900 and $13,800 respectively this year.
  • Catch-up contribution also remains unchanged at $1,000 for persons above 55 years.

Despite the COVID-19 uncertainties, these increases are similar to those of prior years. Plan sponsors should, therefore, ensure they do their best to maximize savings. Update the payroll and administration systems to reflect the coming year’s cost of living adjustments as well as incorporate the announced limits to the plan communications and documents.

CARES Act has further allowed consumers to have access to over-the-counter medications using HSA or Flexible Spending Account (FSA) to pay without a prescription. The prescription was a requirement under the Affordable Care Act before doing any over-the-counter purchase. Telehealth and other remote care services can also be accessed using the HSAs under the CARES Act up to December 31, 2021.

As pointed out, contribution limits are subject to inflation adjustments annually. Health care costs, however, increases drastically outpacing inflation, Americans are therefore forced to spend more out-of-pocket cost to access health care needs. It is worth appreciating the increasing value of HSAs brought about by the new contribution limits. It not only allows individuals and families to increase health savings for the short term but also a key retirement plan to cover health costs after retirement.