IRS Updates HSA Contribution Limits for 2022

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the law that created the HSA program, requires people to use HSAs together with high-deductible health plans.

One reason for the high-deductible health plan requirement is to give HSA users "skin in the game," or enough exposure to what health care really costs to consider price when choosing providers.

Another reason for the requirement is to minimize the impact of the HSA program on federal tax revenue. The tax breaks that power the HSA program reduced federal income tax revenue by $8.5 billion in 2020, according to the White House Office of Management and Budget.

The excepted benefit HRA program gives employers something they had been seeking for years: a legal way to give employees cash the employees can use to buy their own health insurance.

An employee cannot use excepted benefit HRA cash to pay for ordinary individual major medical coverage. An employee can use the excepted benefit HRA cash to pay COBRA health coverage continuation premiums.

An employee also can use the cash to pay for health benefits that are "excepted from," or exempted from, the Health Insurance Portability and Accountability Act and Affordable Care Act rules that apply to major medical insurance. The list of excepted benefits includes dental insurance, vision insurance, disability insurance and critical illness insurance.

(Photo: Allison Bell/ALM)