2005 Government Guidelines For HSA Limits Announced, Adoption Growing

With the election behind it and true to its word, the Treasury Department and IRS have issued new guidance on contribution and other factors associated with Health Savings Accounts.

The announcement, along with other indications from the White House, indicates stronger commitment for HSAs in 2005 with the election past.

Surveys show that adoption of HSAs are moving beyond the 10% range as critical November decision month ends.

The good news is that for 2005, the maximum annual HSA contribution for an eligible individual with self-only coverage is $2,650. (Note: for any individual, the maximum contribution is the lesser of the indexed amount or the deductible of the HDHP.)

For family coverage, the maximum annual HSA contribution is $5,250.

These amounts have been indexed for cost-of-living adjustments for 2005 and are included in Revenue Procedure 2004-71, which announces changes in several indexed amounts for purposes of the federal income tax. The minimum deductible required for HDHPs did not change.

At the same time, there are no decreases in out-of-pocket spending limits for High Deductible Health Plans (HDHPs) that must be used in conjunction with HSAs.

Settles Concerns

"The guidance will help consumers and employers who wish to participate in HSAs in 2005 to plan accordingly," said Treasury's Acting Assistant Secretary for Tax Policy Greg Jenner.

"Knowing the dollar limits for these accounts, and for the high deductible insurance that goes with them, is critical for those who want to get the maximum benefit out of this revolutionary health care coverage option, one that puts health care spending decisions back in the hands of individuals."

Catch up contributions for individuals who are 55 or older is increased by statute from $500 to $600 for 2005.

Both the HSA contribution and catch up contribution apply pro rata based on the number of the months of the year a taxpayer is an eligible individual, and, with respect to the catch up contribution, the number of months of the year that the taxpayer is age 55 and over.

New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:

The maximum annual out-of-pocket amount for HDHP self-coverage increases to $5,100 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $10,200.

Minimum Deductible Amounts for HSA-Compatible HDHPs:

For 2005, the minimum deductible for HDHP is unchanged, remaining at $1,000 for self-only coverage and $2,000 for family coverage.