New HSA and HDHP Limits for 2021 and What It Means for You

The IRS recently announced 2021’s limits for HSAs (Health Savings Account) and HDHP (High-Deductible Health Plans). HSA contribution limits are increasing by $50 for self coverage and $100 for family coverage according to SHRM. HSA annual contribution limits increased as well, roughly by 1.5 percent. Annually, self coverage will be $3,600 and family coverage will be $7,200.

The adjustments are tied with HDHP changes as well. There will be no change in the minimum deductible for HDHP, but there will be a $100 increase for self coverage and a $200 increase for family coverage. This raises the maximum deductible for HDHP to $7,000 for self coverage and $14,000 for family coverage.

Why this change in HSA and HDHP limits?

According to Harrison Stone, general counsel at HSA services firm ConnectYourCare the increases follow the pattern of past years. Stone said, “The IRS contribution-limit increases are in line and similar to prior year increases, despite the COVID-19 environment. While some may view the increases as modest, every dollar matters right now for consumers when it comes to saving.” On top of Stone’s reasoning, changes in HSA and HDHP are also reflective of inflation.

Shobin Uralil, co-founder and COO of an HSA services firm, discussed the pros and cons of HSAs. While recognizing that inflation affects the limits, he also states, “Health care costs continue to outpace inflation, which means Americans will spend more out-of-pocket each year.” But, Uralil still affirms that “these new contribution limits will help increase the value of HSAs to individuals and families,” according to SHRM.

Additional HSA and HDHP developments

Response to COVID-19 affected HSA and HDHP as well. The CARES (Coronavirus Aid, Response, and Economic Security) Act was passed in March. This Act allows account holders to be able to purchase over-the-counter medication and menstrual products using HSA, HRA, and FSA. The CARES Act was passed in March, but the changes related to this Act apply retroactively starting January 1st, 2020 according to SHRM.

What HSA’s future holds

According to recent studies, HSA contributions have been steadily rising since 2017. Utilizing HSA to its highest benefit is the responsibility of both the employee and the employer. Many employers are giving HSA users the opportunity to “‘earn’ employer HSA contributions by participating in wellness activities”.

Kim Buckey, the VP of Client Services at DirectPath said, “The key now is to educate employees on the value [of their HSAs] so they can best utilize them—and ultimately drive down health care costs for themselves and for their employers.”