IRS Releases 2020 HSA Contribution Limits and HDHP Deductible and Out-of-Pocket Limits

This alert is of interest to all employers that sponsor group health plans.  Note that employers with “grandfathered” or “grandmothered” plans are not subject to the ACA out-of-pocket limits, although the HSA/HDHP rules still apply if the plan is an HSA-qualified HDHP.

In Rev. Proc. 2019-25, the IRS released the inflation adjusted amounts for 2020 relevant to HSAs and high deductible health plans (HDHPs).  The table below summarizes those adjustments and other applicable limits.

 

2020 2019 Change
Annual HSA Contribution Limit
(employer and employee)
Self-only: $3,550
Family: $7,100
Self-only: $3,500
Family: $7,000
Self-only: +$50
Family: +$100
HSA catch-up contributions
(age 55 or older)
$1,000 $1,000 No change
Minimum Annual HDHP Deductible Self-only: $1,400
Family: $2,800
Self-only: $1,350
Family: $2,700
Self-only: +$50
Family: +$100
Maximum Out-of-Pocket for HDHP
(deductibles, co-payment & other amounts except premiums)
Self-only: $6,900
Family: $13,800
Self-only: $6,750
Family: $13,500
Self-only: +$150
Family: +$300

Out-of-Pocket Limits Applicable to Non-Grandfathered Plans

The ACA’s out-of-pocket limits for in-network essential health benefits have also been announced and have increased for 2020.

 

2020 2019 Change
ACA Maximum Out-of-Pocket Self-only: $8,150
Family: $16,300
Self-only: $7,900
Family: $15,800
Self-only: +$250
Family: +$500

Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit within family coverage, if the family out-of-pocket limit is above $8,150 (2020 plan years) or $7,900 (2019 plan years).  Exceptions to the ACA’s out-of-pocket limit rule are available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans).  A one-year extension of transition relief was recently announced extending the transition relief to policy years beginning on or before October 1, 2020, provided that all policies end by December 31, 2020.

Next Steps for Employers

As employers prepare for the 2020 plan year, they should keep in mind the following rules and ensure that any plan materials and participant communications reflect the new limits:

  • HDHPs cannot have an embedded family deductible that is lower than the minimum HDHP family deductible of $2,800.
  • The out-of-pocket maximum for family coverage for an HDHP cannot be higher than $13,800.

All non-grandfathered plans (whether HDHP or non-HDHP) must cap out-of-pocket spending at $8,150 for any covered person.  A family plan with an out-of-pocket maximum in excess of $8,150 can satisfy this rule by embedding an individual out-of-pocket maximum in the plan that is no higher than $8,150. This means that for the 2020 plan year, an HDHP subject to the ACA out-of-pocket limit rules may have a $6,900 (self-only)/$13,800 (family) out-of-pocket limit (and be HSA-compliant) so long as there is an embedded individual out-of-pocket limit in the family tier no greater than $8,150 (so that it is also ACA-compliant).

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