Today we are going to cover contribution limits to an HSA for the year 2022. Each year, the amount that one can contribute to an HSA has incrementally increased. 2022 is no different, as the contribution limit has once again changed.
HSAs and HDHPs
Health Savings Accounts (HSA) are savings accounts that can be used to pay for qualified health expenses. An HSA can be used to cover things like co-pays and deductibles, but can also be used on things like Lasik eye surgery, chiropractic care, vitamins, and so much more.
High-deductible health plans (HDHP) are health insurance plans that offer low monthly premiums in exchange for a higher deductible. This means that a beneficiary of a HDHP would experience less money taken out of their paycheck to cover health insurance. It also means that if this beneficiary were to incur a health expense, they would pay more out of pocket than someone not on a HDHP. Beneficiaries are betting on good health and hoping to save money – and it often works.
Difference between HDHP and other insurance plans (HMO, PPO)
Many people are forced to choose between a HDHP and a PPO or HMO come open enrollment. As mentioned above, HDHPs are a great choice for those that are young and healthy. They are characterized by low monthly premiums (less out of your paycheck) but high deductibles (out of pocket health costs). If you are healthy, its easy to see how you could save a ton of money with an HDHP. An HSA makes it even more affordable, as you can contribute with pre-tax money and then use it towards your deductible, effectively getting tax-free medical care.
PPOs and HMOs are characterized by higher monthly premiums, but lower deductibles. If you are pregnant or otherwise have a condition that results in a high annual healthcare spend, PPOs and HMOs are great. You pay more each paycheck for your healthcare, but have to pay less out of pocket at the beginning of the year.
HSA contributions are made with pre-tax money. During open enrollment, a beneficiary is able to elect how much money they would like to set aside from their paycheck to fund an HSA. Throughout the year money is taken out in equal installments and set aside into the HSA. A debit card is sent to the beneficiary with instructions on how to activate it. Once activated, a beneficiary can begin using the card to pay for health expenses pre-tax.
Many employers will partially fund an HSA to incentivize more employees to pick this plan (because it is much cheaper for them as well). I’ve heard of companies going as high as $1,000 of funding to these accounts for family plans.
Limits to HSA contributions
In 2022, HSA contribution limits are increasing from $3,600 to $3,560 for a single individual and from $7,200 to $7,300 for a family plan.
There are no changes to catch-up contributions ($1,000) or minimum deductibles ($1,400 and $2,800), but maximum out-of-pockets are increased from $7,000 to $7,050 for individuals and $14,000 to $14,100 for family plans.
All of this information comes from our best friend, the IRS.
What about an FSA vs an HSA?
FSAs or flexible spending accounts are similar to an HSA, but do not rollover from one year to the next. So yes, the hard-earned money that you have contributed to this account is GONE if you do not use it. FSAs are often paired with PPOs or HMOs, but do not have the wealth building capacity that HSAs have.
What this means for you
Increasing HSA contribution limits in 2022 mean that you can set aside more pre-tax money to help pay for health expenses. If you are healthy and don’t incur any health expenses, then you can roll over the money into a retirement account that is tax-advantaged.
If you need help, feel free to contact me.