House passes law that would double HSA contribution limits
But questions remain as to how many workers would take advantage of the higher HSA contribution limits.
Last week, the U.S. House of Representatives passed a bill that dramatically increases contribution limits to health savings accounts.
The Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act passed on a 242 to 176 vote, with 12 Democrats voting with the majority. Introduced by Rep. Peter Roskam, R-IL in early July, the bill was expedited to the House floor in less than three weeks.
A provision in the bill raises maximum contributions to HSAs tied to high-deductible health care plans to equal the combined annual limit on out-of-pocket and deductible expenses in qualifying plans, which in 2018 is $6,500 for an individual policy and $13,300 for a family plan.
Read: 2019 HSA contribution limits released
The bill also allows couples age 55 and older to make $1,000 in catch-up contributions to the same account. Under existing law, HSA contributions are capped at $3,450 for individuals and $6,900 for families.
First available in 2004, estimates of HSA enrollees range from 21.4 million to 33.7 million.
While the higher contribution limits passed in the House could be a boon for some account holders, questions remain as to how many HSA enrollees would take advantage of the higher limits, which are nearly double the existing caps.
Read: 2018 401(k), HSA, IRA contribution limits released
Data from the non-partisan Employee Benefits Research Institute shows that only 13 percent of account holders contributed the maximum amount in 2016, despite HSA’s triple-tax advantage: Contributions are made pre-tax, investment earnings grow tax-free, and deductions for qualified expenses are not taxed.
That relatively few maximize contributions is in part owed to the fact that most accounts are relatively new, according to EBRI’s analysis of the HSA market.
Of the accounts opened in 2016, only 6 percent received maximum contributions. But of the accounts opened in 2006, 30 percent received maximum contributions. Of the 5.5 million accounts analyzed in EBRI’s database, which accounts for 27 percent of the market, 77 percent of accounts were opened between 2013 and 2016.
Participants who use HSAs as an investment vehicle are also more likely to maximize contributions. Of the accounts that offer investments other than cash or money market vehicles, 44 percent of enrollees maximized contributions, according to EBRI’s data. Only 12 percent of account holders who invest in cash maximize contributions.
But to date, few account holders invest HSA contributions as they would deferrals to a 401(k)—only 3 percent of accounts held investment options other than cash in 2016.
EBRI’s data also shows that enrollment in HSAs has stalled since 2015. Enrollment in HSA-eligible health care plans accounts for approximately 11 percent of the total group market.
About 13 percent of HSA account holders have held accounts for more than 10 years, according to EBRI. Nearly 20 percent have owned accounts for less than one year; 28 percent have held accounts for one to two years.
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