The Health Savings Account (HSA) continues to be the best, most effective way to save for healthcare expenses in retirement.

That’s because these accounts offer three distinct tax advantages. They allow high-deductible health plan participants to contribute pre-taxed dollars to their account via payroll deductions or to make direct contributions that qualify as tax deductions when filing taxes. They offer the ability to invest a portion of the account balance with interest or earnings tax free. HSA accounts also provide the ability to make withdrawals from the account on a tax-free basis as long as the money is used for qualified healthcare expenses.

There’s an estimated 31 million HSAs holding nearly $91 billion in assets, according to a recent report from Devenir research. That represents only a fraction of Americans who qualify for an HSA, as only one in three adults enrolled in a HDHP plan doesn’t have an HSA, according to a national survey conducted in 2016 by Jama Network Open. Among those who have HSAs, the majority of holders don’t contribute to the full extent.

But this trend is changing as both employers and employees are seeing the benefits of HSAs. With continued education on HSAs, employees better understand the long-term benefits for their healthcare expenses in retirement. Employees, for their part, are finding it important to help employees better plan healthcare spending. As a result, industry projections indicate strong growth in HSAs, both number of accounts and asset volume, in the years to come.

If you qualify for an HSA and can regularly contribute, here are some updates the government made for 2022 that you need to know.

• The main change for 2022 is that contribution limits for HSAs went up $50 for self-only coverage and $100 for family coverage. The annual inflation-adjusted limit on HSA contributions is now $3,650 for self-only and $7,300 for family coverage, representing a percentage increase of about 1.4% compared to 2021. 
• The Internal Revenue Service also updated the maximum out-of-pocket expenses for HDHPs, which Americans must be enrolled in to qualify for an HSA. Maximum out-of-pocket limits also increased by $50, to $7,050 for individual and self-only plans and to $14,100 for family plans.

However, some limits remained unchanged for 2022. In particular, the minimum deductible amounts are still at $1,400 for self-only plans and $2,800 for family plans. Additionally, the annual catchup contribution amount for individuals 55 and older remains at $1,000.

Flexible Spending Accounts (FSAs) Changed in 2022 Too

Healthcare flexible spending accounts are similar to HSAs but differ slightly. Employees decide at the beginning of the year how much they will contribute that year and the money is deducted from each paycheck. 

The balance of FSAs don’t typically roll over and if account holders don’t use their full balance by the end of the year, they’re usually allowed to carry over only a portion and end up losing the rest. The FSA carryover limit is typically 20% of the annual contribution limit.

 The IRS also made changes to these FSA limits:

• The limit on annual employee contribution limits toward health FSAs is $2,850 for 2022, up from $2,750 in 2021. The limit applies to each employee so if both spouses are employed and eligible for a health FSA, they can contribute a total of $5,700 for 2022.
• The FSA carryover limit for 2022 is $570, up from $550 in 2021.

It’s also important to note that some Covid-19 relief measures still apply to FSAs, giving employers the option to allow employees to carry over their unspent 2021 FSA balance into 2022. This is part of the Consolidated Appropriations Act of 2021. This is at the discretion of employers.

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