IRS Announces 2008 Inflation Adjustments for HSAs and HDHPs

The Internal Revenue Service recently announced the new inflation-adjusted indexed amounts for health savings accounts (HSAs) and high-deductible health plans (HDHPs) that will apply during 2008.

The 2008 Indexed Amounts

For self-only coverage, the limit on deductions for contributions to HSAs will increase from $2,850 for 2007 to $2,900 for 2008. For family coverage, the limit will increase from $5,650 to $5,800. (On a related note, the additional "catch-up" contribution that can be made to an HSA by individuals age 55 or older will increase by statute from $800 in 2007 to $900 in 2008.)

For 2008, the minimum deductibles for an HDHP will remain at $1,100 for self-only coverage and $2,200 for family coverage. The HDHP maximum annual out-of-pocket limit (including deductibles, co-payments and other amounts, but excluding premiums) will increase from $5,500 to $5,600 for self-only coverage and from $11,000 to $11,200 for family coverage.

Tax Relief and Health Care Act of 2006 Changes

The IRS also modified an earlier Revenue Procedure to reflect changes made by the Tax Relief and Health Care Act of 2006. (Those changes were summarized in our December 21, 2006 Benefits Alert.) Specifically, the IRS eliminated the "smaller of" rule, which limited the HSA deduction to the smaller of the HDHP deductible or the statutory limit, and changed the publication date of the cost-of-living adjustments so that the adjusted HSA and HDHP amounts will be published by June 1 of the preceding calendar year, rather than in the fall of the preceding calendar year.