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November 29, 2006
(Updated December 29, 2006)

2007 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 2006-53,¹ which announced various inflation-adjusted amounts for 2007 for High-Deductible Health Plans (HDHPs), Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs). The new numbers are shown in the first of the two charts below. The second chart notes the maximum annual HSA contributions for 2007.

*	HSAs, established by the Medicare Modernization Act (MMA) as of January 1, 2004, allow individuals or employers to contribute to an HSA as long as the individual is covered under an HDHP. (For more information about HSAs, refer to various publications available on The Segal Company's Web site.
**	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. (As of the date of this Capital Checkup, Congress had not extended the Archer MSA demonstration project into 2006 or later. Existing Archer MSAs can continue, but no new Archer MSAs can be created unless Congress extends the project.)
***	The out-of-pocket expense does not include premiums.

*	Before the Tax Relief and Health Care Act of 2006, contributions to an HSA were limited to the lesser of the annual deductible under the companion HDHP or an indexed amount established by the Treasury Department (in 2007 $2,850 for individual coverage and $5,650 for family coverage). The Act removes the link to the annual HDHP deductible for tax years beginning after December 31, 2006. Consequently, for 2007, the maximum contributions are $2,850 (individual) or $5,650 (family) regardless of the plan’s deductible.

Individuals age 55 or over by the end of 2007 can contribute an additional $800 to their HSAs for 2007. This is an increase from the 2006 catch-up contribution of $700. Catch-up contributions increase by $100 per year under the statute until they reach a maximum of $1,000 in 2009.

Implications for Plan Sponsors

As of January 2006, America's Health Insurance Plans (AHIP) found that almost 3.2 million people were covered by Health Savings Account/High Deductible Health Plan products. This is more than triple the HSA/HDHP enrollment that was found by AHIP in March 2005. Approximately 1.4 million of these enrollees were in the group market.² The Wall Street Journal reported on November 14, 2006 that there are 1,100 banks offering HSAs and that by the end of 2006 there will be 3.6 million accounts holding $5 billion in combined deposits.

While employers continue to examine HSAs as a benefit option, there have been several obstacles to widespread implementation. Chief among these are the limitations on HSA contributions and the fact that prescription drugs (other than preventive drugs) may not be paid until the deductible is met. Because of the high deductible requirement, HSAs would likely not be able to co-exist with an existing prescription drug carve-out program. In addition, in August 2006, the IRS published final rules regarding comparable contributions, which regulate most employer contributions to HSAs.³

Legislative efforts to make HSAs more flexible, such as increasing the maximum contribution limit and permitting the rollover of FSA and HRA funds into HSAs, were introduced in Congress this session, but may have less support in the 110^th Congress.

Plan sponsors interested in exploring the benefits of 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 Health Savings Accounts. 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 2006-53, which was published on November 9, 2006, click here. (To return to the Capital Checkup text, click here.)
2	To see this AHIP research, click here. (To return to the Capital Checkup text, click here.)
3	To see The Segal Company's August 2006 Bulletin, "Final IRS Rules on Comparable Contributions to HSAs," click here. (To return to the Capital Checkup text, click here.)

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