Inflation is (rightly) the center of many of our conversations about policy and the economy right now. Did you know that inflation also impacts regulation regarding health savings accounts (HSAs)? The IRS recently made their annual HSA inflation adjustments for 2023, and they’re historical.
Key Takeaways
- 2023 increases are the highest in HSA history.
- Adjustments reflect the highest inflation in decades.
2023 Contribution Limits
Let's start by reviewing 2023's adjustments.
For 2023, the individual contribution limit increased to $3,850, a $200 (5.5%) increase, and the family contribution limit increased to $7,750, a $450 (6.2%) increase. But how significant are these increases within the history of the HSA?
HSA Adjustment History
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 introduced health savings accounts (HSAs), going into effect for the 2004 tax year. The Medicare Prescription Drug Act also required the IRS to do annual cost-of-living adjustments, starting in 2005.
In 2023, the IRS increased individual and family contribution limits by $200 (5.48%) and $450 (6.2%). The next closest year? 2007, when the IRS adjusted individual and family contribution limits by $150 (5.56%) and $200 (3.67%). 2023's increases are the highest overall adjustments made in the history of the HSA (2004-2023).
How the IRS Calculates Inflation
IRS economists calculate inflation based on the chained CPI, an index that captures the current cost of goods in the economy. They apply that percentage to HSA amounts (e.g., contribution limits) and round to the nearest $50. If you want to geek out, the 26 U.S. Code § 223 (G) spells out cost-of-living adjustments. To state the obvious, it makes sense why 2023's increases are so high. Consumer prices are increasing at their fastest rate in almost forty years, and 2023 inflation adjustments reflect it.
Note: The IRS uses the non-rounded amount from the previous year to calculate next year's adjustment. For this reason, some years may show no increase.
What Industry Experts Are Saying
We reached out to the Founder & President of HSA Consulting, Roy Ramthun, for his thoughts on the increase. Roy led the U.S. Treasury Department’s implementation of HSAs after they were enacted into law in 2003 and is a nationally-recognized expert on health savings accounts and consumer-directed health care issues.
