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November 24, 2004

2005 MINIMUMS AND MAXIMUMS FOR HIGH-DEDUCTIBLE HEALTH PLANS, HEALTH SAVINGS ACCOUNTS AND ARCHER MEDICAL SAVINGS ACCOUNTS


The Internal Revenue Service (IRS) recently released Revenue Procedure 2004-71, which announced various inflation-adjusted amounts for 2005.1 The new numbers for high-deductible health plans (HDHPs), Health Savings Accounts (HSAs) and Archer medical savings accounts (MSAs) are shown in the first of the two charts below. The second chart notes the maximum annual HSA contributions for 2005.

HSAs, established by the Medicare Modernization Act (MMA)2 as of January 1, 2004, allow individuals or employers to contribute to an HSA as long as the individual is covered under an HDHP.3 The minimum deductible for HDHPs accompanying an HSA did not increase from the 2004 amounts. The maximum out-of-pocket expenses for the HDHP increased slightly.

The Health Insurance Portability and Accountability Act (HIPAA) originally established Archer MSAs in 1996 as a demonstration project. Archer MSAs also require that an individual is covered under an HDHP, but MSAs are more limited than HSAs because they can only be established by the self-employed or small employers (under 50 employees). Most recently, in the Working Families Tax Relief Act of 2004 (WFTRA) Congress extended the Archer MSA demonstration project through December 31, 2005.4 For Archer MSAs, both the minimum/maximum deductible and the out-of-pocket maximums increased slightly.

  2005 Minimums and Maximums for HDHPs Required
  for HSAs and Archer MSAs
  HDHP Required for HSAs HDHP Required for Archer MSAs
  Individual Coverage:
  Minimum Deductible $1,000
(no increase from 2004)		 $1,750
(up $50 from 2004)
  Maximum Deductible None $2,650
(up $50 from 2004)
  Maximum Out-of-
  Pocket Expense*		 $5,100
(up $100 from 2004)		 $3,500
(up $50 from 2004)
  Family Coverage:
  Minimum Deductible $2,000
(no increase from 2004)		 $3,500
(up $50 from 2004)
  Maximum Deductible None $5,250
(up $100 from 2004)
  Maximum Out-of-
  Pocket Expense*		 $10,200
(up $200 from 2004)		 $6,450
(up $150 from 2004)
* The out-of-pocket expense does not include premiums.
 
  2005 Maximum Annual HSA Contributions
  Lesser of the Two Amounts
in Each Row Below
  Individual Coverage HDHP deductible $2,650*
(up $50 from 2004)
  Family Coverage HDHP deductible $5,250**
(up $100 from 2004)
* This amount is pegged to the Archer MSA deductible limit for individual coverage.
** This amount is pegged to the Archer MSA deductible limit for family coverage.
 

Individuals age 55 or over by the end of 2005 can contribute an additional $600 to their HSAs for 2005.

Implications for Plan Sponsors

Plan sponsors looking for innovative measures to save money and increase employee involvement in the employee's own health care have looked at HSAs as a possible vehicle. Most sponsors have been disappointed in HSAs, because of the administrative complexity involved in both establishing contributions to the accounts and designing the accompanying HDHP. Some plan sponsors are trying HSAs for 2005, but the majority of sponsors are taking a "wait-and-see" approach to these new accounts.

Many firms with Archer MSAs, particularly professional service firms, are exploring whether to continue their Archer MSA or to convert the MSA into an HSA. Factors might include the fact that an HSA does not contain a maximum deductible like the MSA, HSAs allow "catch-up" contributions for employees over 55, and HSA distributions can be used to pay for Medicare premiums.

Plan sponsors interested in exploring the benefits of an HSA or in transitioning their MSA to an HSA should contact their Segal consultant to determine what course of action is right for them.

        

As with all issues involving the interpretation or application of laws, health plan sponsors should rely on their legal counsel for authoritative advice on the MMA. The Segal Company can be retained to work with plan sponsors and their attorneys to evaluate the impact of the decision and possible compliance responses.

1 To see Revenue Procedure 2004-71, which is available on the IRS Web site, click here. (To return to the Capital Checkup text, click here.)
2 MMA is the abbreviation for The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 used by the Centers for Medicare & Medicaid Services. (To return to the Capital Checkup text, click here.)
3 For more information about HSAs, refer to various publications available on The Segal Company's Web site. (To return to the Capital Checkup text, click here.)
4 For more information about the WFTRA, see Segal's November 22, 2004 Capital Checkup, "Employee Benefits Plans and the Working Families Tax Relief Act of 2004". (To return to the Capital Checkup text, click here.)

 

Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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