A significant legislative issue related to health savings accounts (or HSAs) and high-deductible health insurance plans (or HDHPs) could impact you in the near future. The Contraceptive Equity Act was enacted in Maryland in 2016. Effective on Jan. 1, 2018, the Act mandates that male contraceptive services (vasectomies) must be covered as a preventive service — i.e., without any deductible or cost-sharing required.
HSA-qualified HDHPs are prohibited from covering any benefits before the deductible is met, except for IRS-approved preventive care services. This effectively means HSAs may be no longer available in Maryland, since the Contraceptive Equity Act made no exemption for HSA-qualified HDHPs. This would be a big loss to Marylanders as 2 out of 3 Americans rely upon the use of a HDHP in conjunction with an HSA account to combat rising health insurance costs.
I encourage you to read on if:
- You are an individual planning to make additional contributions into your HSA for calendar year 2018—either directly or via payroll deduction: You may want to delay your 2018 contributions until dust has settled. Meanwhile, perhaps you can top off your account for calendar year 2017 by making a direct contribution before April 15th if you have not already maxed out; if you do this, be sure to designate the contributions as catch up for year 2017.
- You are an individual who was planning to start an HSA account in 2018: Consider putting in just a few dollars or whatever minimum the financial institution will accept for the purpose of activating the account; then wait until dust has settled before making additional contributions.
Why the few dollars? To keep any penalties to a minimum while simultaneously trying to establish an earlier start date for your new HSA account so more of you upcoming medical expenses will qualify for payment via the HSA. For example, let's say you create an HSA account on 1/2/18 by contributing $5 and then sit tight. In between account creation and a legislative fix to allow contributions for 2018, your toboggan collides with a tree and you incur $1,200 in medical expenses. Your HDHP will not cover these expenses since you have not yet met your deductible. Having the HSA account in place before the accident may enable you to ultimately use pre-tax dollars to pay those bills. How do we figure that when you only have $5 in the account??
Once the dust settles, and the green light is back on for making contributions, you can put more money into the HSA account and then pay the bills directly from the HSA account. Or, if you've already paid the bills directly from your pocket, you can put more money into the HSA account and then reimburse yourself. Either way, you've saved money by using pre-tax dollars to pay. At a minimum, you've saved income taxes; if you contribute via a cafeteria plan at work, you've also saved social security and Medicare taxes.
- You work for a bank: Consider policy changes/exposures/client communications in regards to accepting new HSA accounts as well contributions for 2018 into HSA for Maryland residents.
- You are a payroll service provider: Consider policy changes/exposures/client communications in regards to accepting new HSA accounts as well contributions for 2018 into HSA for Maryland residents. A significant portion of HSA contributions occur via payroll activity—via employee cafeteria plan elections and/or via contributions employers "gift" on your behalf. HSA contributions made via payroll generally impact the calculation of social security and Medicare tax withholdings and employer match.
- You are a health insurance broker: Consider alerting employers to issue/helping evaluate exposures/employee communications and payroll strategies. Note, cessation of HSA contributions via a cafeteria plan will result in more tax to both employee and the employer (FICA match.)
If the IRS determines after Jan. 1, 2018 that male sterilization is a preventive service AND that position is treated retroactively, no further legislative action will be needed. However, if no such determination is made, new Maryland legislation would be required to preserve HSA contributions in Maryland.
Emergency legislation is expected to be introduced in the upcoming General Assembly session, which convenes on Jan. 10. If this legislation is passed in the 2018 session, there is still a strong possibility it will NOT BE retroactive to Jan. 1, 2018.
Please email Mari@reumontcpa.com if you have any questions.