2021 Inflation-adjusted Limits for HDHPs

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The IRS recently issued several advisories about 2021 inflation-adjusted limits for High Deductible Health Plans (HDHPs) paired with Health Savings Accounts (HSAs), non-grandfathered health plans, and ACA employer shared responsibility penalties under IRC §4980H. The purpose of this post is to summarize these various 2021 limits. We will also comment on Health FSAs.

2021 Inflation-adjusted Limits for HDHPs

HDHPs/HSAs

Although the minimum deductibles of $1,400 for Self-only coverage and $2,800 for Family coverage will not change from 2020, the limits for annual contributions and in-network out-of-pocket expenses will be increased as follows:

Calendar Year 2020Calendar Year 2020Calendar Year 2021Calendar Year 2021
Self-onlyFamilySelf-onlyFamily
Annual Contribution Limit$3,550$7,100$3,600$7,200
HDHP Out-of-Pocket Limit
(includes deductibles and
coinsurance)
$6,900$13,800$7,000$14,000

Non-Grandfathered Health Plans

As you know, the ACA requires “traditional” non-grandfathered plans (other than those HDHPs paired with HSAs) to limit annual out-of-pocket expenses for in-network essential health benefits. The following compares the 2020 and 2021 limits:

Calendar Year 2020Calendar Year 2020Calendar Year 2021Calendar Year 2021
Self-onlyFamilySelf-onlyFamily
Out-of-Pocket Limit (includes deductibles and coinsurance)$8,150$16,300$8,550$17,100

Notes: a) If an employer offers both traditional and HDHP/HSA plans (that are not grandfathered), the plans are subject to both sets of requirements, and the employer must comply with the lowest applicable out-of-pocket maximum.

b) The ACA requires that a per person, embedded out-of-pocket maximum doesn’t exceed the ACA self-only limit, even if the person is in the family tier.

ACA Employer Shared Responsibility Penalties

If an Applicable Large Employer fails to provide essential health benefits to at least 95% of full-time employees, the penalty under IRC §4980H(A) will increase from $2,570/FTE to $2,700. This is in accordance with the premium adjustment percentage rules set out in this IRC provision.

If the Applicable Large Employer fails to provide essential health benefits that are deemed “unaffordable”, the penalty under IRC §4980H(B) will increase from $3,860 to $4,060 for each employee who purchases subsidized coverage on the ACA Market Place (i.e. the “exchange”).

Health Care FSA

The IRS has not yet announced a change from the 2020 maximum Heath FSA salary deferral of $2,750. However, the maximum carryover amount has been increased from $500 to $550 for the plan year beginning in 2021. Thereafter, the carryover amount will be equal to 20% of the maximum Health FSA salary reduction contribution under IRC §125 (i) for that plan year.

To learn more about how Inflation-adjusted Limits can affect HDHPs contact Bruce Davis in the form below.

Published June 3, 2020

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Copyright © 2020 by Findley, Inc. All rights reserved.

New FSA rules from the IRS: Some Considerations

This past week, the IRS has provided two notices (IRS Notice 2020-29 and IRS Notice 2020-33) related to health flexible spending accounts and dependent care flexible spending account plans, commonly referred to as health FSAs and DCAP plans. Many employers and employees have been hoping for, or even expecting this type of guidance, which was a relaxation of strict IRS rules related to health FSA and DCAP plans.  

Given the current COVID-19 public health emergency, childcare facilities have been shut down for a period of time nationwide. Elective surgeries have been deferred and for some people, may not be rescheduled this year. This means that money employees have set aside in DCAP or health FSA accounts may not be needed this year. Unlike other employee healthcare-related accounts, such as health savings accounts (HSAs), funds deferred into health FSAs and DCAPs have limited rollover capabilities. This new guidance from the IRS is a welcome effort to offer flexibility to these programs and it certainly makes sense in this unprecedented time.

A summary of specific changes can be found here.

However, as an employer, there are a couple of things you should keep in mind.

New FSA rules from the IRS

Communication Plan

If you have a DCAP and/or a Health FSA, and you choose to implement these flexible options for 2020 you will want to take some action to notify your employees. Because these changes can have a significant financial impact on your employees during this unusual time, you may want to consider putting some extra efforts toward educating your employees as to their specific new options. You should also expect to work with your FSA and DCAP administrator(s), if applicable, to coordinate upcoming changes and necessary file feeds.  This may be as simple as an email and you may be able to rely on your vendors or broker/consultant to draft communications.

Depending on the needs of your employees, you may feel a more robust communication plan is required. If that is the case, please reach out to the contact below or your Findley consultant and they can help.

Effects on Non-discrimination testing

In general, employers who sponsor DCAP and Healthcare FSA plans are subject to Cafeteria plan non-discrimination testing under IRS Code section 125.  DCAPs are additionally subject to DCAP plan testing under IRS Code section 129. Employers should know that the IRS notices do not suspend non-discrimination testing for the 2020 plan year and employers should be mindful that they still must pass applicable non-discrimination tests in order to maintain tax-qualified benefit plans. If you have already reviewed your current plan year and have passed testing related to IRS codes section 125 and 129, you may need to revisit those tests with updated information.

Particularly for DCAP testing under IRS code section 129, passing the average benefits test can be an annual source of anxiety for some employers. Adding deferral flexibility may change a plan from passing or failing this test in a given year, depending on changes your employees elect.

If you have questions regarding the impact of additional deferral changes on your ability to pass non-discrimination testing, you should reach out to whoever handles your testing annually. This may be your FSA or DCAP administrator or a consultant.

Here at Findley, we offer this type of expertise to our clients. If you should have any questions, please reach out to the Findley consultant you normally work with or Dave Tighe at Dave.Tighe@findley.com or 419.327.4194

For the actual IRS notices click here

Published May 21, 2020

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Copyright © 2020 by Findley, Inc. All rights reserved.

Side-by-side Comparison of HSAs, HRAs and FSAs

With the new HRA rules announced earlier this year, we have created a side by side comparison of Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs), to help our clients and friends navigate the similarities and differences between each. Our goal is to simplify complex topics to help employers identify the right plan and approach for their specific benefit strategies.

Published September 11, 2019