2022 Health Savings Account and Health Reimbursement Arrangement Limits

The Internal Revenue Service recently released updates to the maximum annual 2022 contribution limits for health savings accounts (HSAs) under high deductible health plans (HDHPs); these adjustments, which are marginal increases from 2021, apply to both individual and family coverage. The updates also include deductible minimums and out-of-pocket expense limits for HDHPs, as well as the maximum amount that may be made newly available for health reimbursement arrangements (HRAs).

The 2022 limits are summarized below:

Annual HSA Contribution Limits

• Individual with self-only coverage is $3,650.
• Individual with family coverage is $7,300.

Annual Minimum Deductibles for HDHPs (no change from 2021)

• Self-only coverage $1,400 or more.
• Family coverage $2,800 or more.

Annual Maximum Out-of-Pocket Expense Limits for HDHPs

• Self-only coverage may not exceed $7,050.
• Family coverage may not exceed $14,100.

Plan Year HRA Maximum

• Maximum amount for a plan year may not exceed $1,800.

IRS Confirms Tax Status of DCAP Extensions
The COVID-19 relief provisions in last December’s Consolidated Appropriations Act, 2021 (CAA) included special rules related to dependent care assistance programs (DCAPs). These rules specifically allowed employers to extend their generally applicable grace periods or to adopt special carryover provisions.

Under either approach, employers can allow their employees an additional year (2021 or 2022) to spend down DCAP contributions made during the prior plan year.

The CAA did not however, specifically change the annual limits for DCAP contributions. As a result of this extension, it immediately became possible for an employee to incur more than the generally applicable $5,000 annual limit in claims in a single year. For example, if an employee in a calendar year plan elected $5,000 for 2020 but did not incur any qualified expenses, and then elected an additional $5,000 for 2021, they could spend a total of $10,000 from their DCAP in 2021. IRS Notice 2021-26 clarifies that in this case the entire $10,000 would be non-taxable—even though it exceeds the normally applicable $5,000 annual limit. In fact, if the employer adopted the special increased annual limit for 2021 discussed below, an employee could theoretically spend as much as $15,500 towards qualified expenses on a non-taxable basis in calendar year 2021.

Unfortunately, things are not quite that easy. The American Rescue Plan of 2021 (ARPA) changed the annual limit for DCAP contributions from $5,000 to $10,500 for the 2021 calendar year only. This significantly complicates matters for non-calendar year plans because the $10,500 cannot be spread over two calendar years. Amounts “leftover” in a non-calendar year plan at the end of the calendar year are not carryovers or grace period dollars when made available to participants in the next calendar year. This means that reimbursements from the DCAP could be taxed if total reimbursements exceed the annual limit for the second calendar year.

This is a difficult concept made even more complicated by the examples in IRS Notice 2021-26 which are
complex enough to give even the most seasoned employee benefits attorneys nightmares. The bottom line is the $10,500 annual limit for 2021 does not work well for non-calendar year plans and should be avoided. We would also recommend that calendar year plan sponsors carefully evaluate the increase in annual limit to $10,500 because of (1) its temporal nature, (2) the increased risk of failing nondiscrimination testing, and (3) the added complications when combined with the CAA carryover/grace period rules discussed above.

HHS Will Enforce LGBTQ Health Plan Nondiscrimination Protections Moving Forward

The Department of Health and Human Services (HHS) announced on May 10, 2021, that it will be extending enforcement of the ACA Section 1557’s healthcare nondiscrimination protections to complaints concerning both sexual orientation and gender identity. This decision follows the U.S. Supreme Court’s ruling last summer in Bostock v. Clayton County, GA that employment discrimination based on sex encompasses discrimination based on sexual orientation and gender identity. It also correlates with President Biden’s January 21, 2021 Executive Order directing all federal agencies to “prohibit discrimination on the basis of gender identity or sexual orientation, so long as the laws do not contain sufficient indications to the contrary.”

From a health insurance plan administration perspective, this means that the HHS Office of Civil Rights will be fielding complaints and conducting investigations about health plan benefits based on gender identity or sexual orientation moving forward. More rules on this topic are expected but based on this notice it is possible that covered health plans could be at risk if they do things like fully exclude services related to gender transition or dysphoria.

Employers should review their medical plan documents, including certificates of coverage for potential areas of discrimination. It would then be appropriate to discuss any potentially problematic coverage limitations with their health insurance carrier or third-party claims administrator.