IRS Allows Taxpayers with Family Coverage to Use $6,900 HSA Limit for 2018
On April 26, 2018, the Internal Revenue Service (IRS) announced that, for 2018, taxpayers with family high deductible health plan (HDHP) coverage may treat $6,900 as the annual contribution limit to their health savings accounts (HSAs).
Earlier this year, a tax law change for 2018 reduced the HSA contribution limit for individuals with family HDHP coverage from $6,900 to $6,850. After this change was announced, the IRS received complaints that the $50 reduction would be difficult and costly to implement. The IRS has now decided to allow taxpayers with family HDHP coverage to use the original $6,900 limit for HSA contributions for 2018 without facing excess contribution penalties.
Employers with HDHPs may want to inform their employees about the HSA contribution limit change for family HDHP coverage. Employees who changed their HSA elections to comply with the reduced limit may wish to change their elections again for the $6,900 limit. After the reduction in the limit was announced, some HSA account holders may have received a distribution (with earnings) from their HSAs to correct an excess contribution based on the $6,850 limit. Revenue Procedure 2018-27 addresses the tax consequences for these individuals. To avoid taxes and penalties, individuals can repay these distributions or use them for qualified medical expenses.
Individuals may repay the distribution to the HSA and treat the distribution as the result of a mistake of fact due to reasonable cause under IRS rules. The portion of a distribution (including earnings) that an individual repays to an HSA by April 15, 2019, is not included in the individual’s gross income or subject to the 20 percent additional tax for distributions for non-medical expenses, and the repayment is not subject to the excise tax on excess contributions. However, an HSA trustee or custodian is not required to allow individuals to repay mistaken distributions.
If the distribution is not repaid and is attributable to employer HSA contributions (including employee contributions through a cafeteria plan) that are not included in the employee’s wages, the distribution is included in the employee’s gross income and subject to the 20 percent additional tax unless it is used to pay qualified medical expenses.
Final Notice of Benefit and Payment Parameters for 2019
On April 9, 2018, the Department of Health and Human Services (HHS) released its final Notice of Benefit and Payment Parameters for 2019. This final rule describes benefit and payment parameters under the Affordable Care Act (ACA) that apply for the 2019 benefit year. Standards included in the final rule relate to:
- Annual limitations on cost sharing;
- The individual mandate’s affordability exemption;
- Special enrollment periods in the Exchange; and
- Essential health benefit (EHB) benchmark plan options.
Although the tax reform bill effectively eliminated the individual mandate penalty beginning in 2019, the final rule notes that individuals may still need the affordability exemption to determine eligibility for catastrophic coverage.
Effective for plan years beginning on or after Jan. 1, 2014, the ACA requires non-grandfathered plans to comply with an overall annual limit—or an out-of-pocket maximum—on EHBs. The ACA requires the out-of-pocket maximum to be updated annually based on the percent increase in average premiums per person for health insurance coverage. For 2019, the out-of-pocket maximum will increase to $7,900 for self-only coverage and $15,800 for family coverage.
New Resources for Mental Health Parity Compliance
The Department of Labor (DOL) has provided new resources to promote compliance with the Mental Health Parity and Addiction Equity Act (MHPAEA). The MHPAEA requires parity between mental health and substance use disorder (MH/SUD), medical and surgical benefits. The DOL’s resources include:
- Proposed FAQs regarding mental health parity;
- An updated self-compliance tool for group health plans; and
- A revised draft model form that participants may use to request information about their MH/SUD benefits.
The DOL has also identified examples of non-quantitative treatment limitations (NQTLs) that may violate the MHPAEA. The DOL, through its Employee Benefits Security Administration (EBSA), enforces the MHPAEA’s requirements for private-sector employment based health plans. Vigorous enforcement of the MHPAEA has been one of the DOL’s top enforcement priorities. When EBSA identifies MHPAEA violations in a specific group health plan, it asks the plan to make necessary changes to any noncompliant plan provision and to re-adjudicate any improperly denied benefit claims. In fiscal years 2016 and 2017, EBSA closed 671 health plan investigations, 378 of which included reviews of MHPAEA compliance. These investigations resulted in 136 citations for MHPAEA violations. During the 2017 fiscal year, almost 50 percent of MHPAEA violations involved NQTLs.
An ERISA plan participant contacted EBSA for help after the mental health claims for his son were denied based on the grounds that the treatment was not medically necessary. The plan also initially refused to provide its criteria for medical necessity, claiming that it was proprietary. EBSA contacted the plan administrator on the participant’s behalf, explained how the MHPAEA’s requirements applied to the plan and asked that the claims be reviewed. As a result, the plan voluntarily complied and paid $48,000 in claims for intensive outpatient therapy for the participant’s son.
Employers should work with their carriers and claims administrators to confirm that their health plan’s coverage of MH/SUD benefits complies with the MHPAEA, including any NQTLs. They should also consider using the DOL’s resources to understand the MHPAEA’s requirements and review their plan designs.
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