On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law. In addition to providing direct financial assistance to Americans, the CARES Act repeals the Medicine Cabinet Tax provision of the Affordable Care Act (ACA), expanding the list of qualifying expenses that can be purchased with health savings accounts (HSAs).
The IRS has released the new HDHP/HSA limits for 2021:
- Individual $3600
- Family $7,200
- Catch up for Ages 55 and older is $1,000
Remember: HSA’s roll over from year to year, so even if you do not use it this year, the money is there when you do need it.
CARES ACT AND QUALIFYING MEDICAL EXPENSES
Under the CARES Act, the definition of a qualifying medical expense now includes certain over-the-counter (OTC) medications and products.
Examples of expenses that are now eligible medical expenses under the CARES Act include, but are not limited to, the following:
Analgesics (e.g., vaporizing rub)
- Anti-diarrhea medicine
- Anti-gas, Antacid
- Anti-inflammatory medication
- Burn treatments, OTC
- Calamine lotion
- Cold and flu medicine
- Cold sore remedies
- Cold/hot packs
- Contact lens solutions/cleaners
- Cotton balls (sterile)
- Cough drops, cough suppressants
- Diaper rash treatments
- Elastic wraps
- Eye drops (nonmedicated)
- Feminine hygiene products
- Fiber laxatives
- First-aid kits
- Heating pads
- Hemorrhoid treatments
- Insect bite/sting medicine
- Medicated lip balm/cream
- Menstrual pain relievers
- Nicotine patches, gum and lozenges
- OTC pain relievers
- Pregnancy test kits
- Prenatal vitamins
- Reading glasses
- Stomach remedies
- Sunburn treatments
- Throat lozenges/cough drops
Please note, this list is not all-encompassing. For more information on your medical spending account, please contact your plan administrator.
HSA/HDHP Limits Increase for 2021
On May 20, 2020, the IRS released Revenue Procedure 2020-32 to provide the inflation-adjusted limits for health savings accounts (HSAs) and high deductible health plans (HDHPs) for 2021. The IRS is required to publish these limits by June 1 of each year.
These limits include:
- The maximum HSA contribution limit;
- The minimum deductible amount for HDHPs; and
- The maximum out-of-pocket expense limit for HDHPs.
These limits vary based on whether an individual has self-only or family coverage under an HDHP.
Eligible individuals with self-only HDHP coverage will be able to contribute $3,600 to their HSAs for 2021, up from $3,550 for 2020. Eligible individuals with family HDHP coverage will be able to contribute $7,200 to their HSAs for 2021, up from $7,100 for 2020. Individuals who are age 55 or older are permitted to make an additional $1,000 “catch-up” contribution to their HSAs.
The minimum deductible amount for HDHPs remains the same for 2021 plan years ($1,400 for self-only coverage and $2,800 for family coverage). However, the HDHP maximum out-of-pocket expense limit increases to $7,000 for self-only coverage and $14,000 for family coverage.
Employers that sponsor HDHPs should review their plan’s cost-sharing limits (minimum deductibles and maximum out-of-pocket expense limit) when preparing for the plan year beginning in 2021. Also, employers that allow employees to make pre-tax HSA contributions should update their plan communications for the increased contribution limits.
The following chart shows the HSA and HDHP limits for 2021 as compared to 2020. It also includes the catch-up contribution limit that applies to HSA-eligible individuals who are age 55 or older, which is not adjusted for inflation and stays the same from year to year.