The IRS has announced updated financial limits for health savings accounts (HSAs) and high deductible health plans (HDHPs) for the 2025 plan year. These adjustments, released in Revenue Procedure 2024-25 on May 9, 2024, are part of the annual review to keep pace with inflation.

HSA and HDHP Changes for 2025

Health Savings Account

The maximum contribution limits for Health Savings Accounts (HSAs) have been updated. For individuals with self-only coverage, the limit has increased to $4,300, up from $4,150. Meanwhile, those with family coverage will see their limit increase to $8,550 from $8,300. Additionally, the "catch-up" contribution for those aged 55 and older remains unchanged at $1,000.

High Deductible Health Plans

The minimum deductible for self-only coverage under a High Deductible Health Plan (HDHP) will increase to $1,650, up from $1,600. The deductible for those with family coverage will rise to $3,300 from the previous $3,200. Regarding HDHP out-of-pocket maximums, the maximum out-of-pocket expense for individual plans will increase to $8,300, up from $8,050. Meanwhile, family plans will have their limit raised to $16,600 from $16,100.

How can HSAs help your employees combat inflation?

In the long run, the tax advantages of HSAs and the investment options some HSA administrators offer can help hedge against inflation.

• HSA contributions are pre-tax (or tax-deductible)
• Interest earned is tax-free
• Deductions are tax-free if spent on eligible expenses

However, according to a recent Employee Benefit Research Institute (EBRI) study, less than 10% of HSA account holders are currently investing their HSA balances. Depending on the rate of return, this option could allow account holders to beat inflation over time.

But what if an employee has a medical expense while the market is down?

Employees are not required to use HSA funds to pay for eligible expenses in the same year those costs are incurred. Deferring the use of HSA funds to pay for medical expenses creates a “cheat code” used by savvy investors who leave their HSA in the market, paying all ongoing eligible expenses out of pocket while keeping receipts for IRS purposes. Account holders decide when to withdraw a tax-free lump sum, which could be years (or decades) later. Depending on the total of eligible expense receipts that they accumulated over the years, this could amount to tens of thousands of tax-free dollars that can be spent on whatever they want.

Some studies suggest retirees should set aside $300,000 or more for health care costs during retirement. So why not put pre-tax money away now to pay for future medical expenses with tax-free dollars? And due to record inflation, you can save even more next year.

High inflation and concern over a possible recession make retaining top employees a priority for organizations. While significant compensation increases may not always be possible, a better total compensation package, including quality employee benefits and education for employees on how to make the most of these benefits, can help. Let CBIZ show you the right way to HSA. Connect with an expert today.