A breakdown of 2023 inflation adjustments within the context of HSA history.
The IRS recently made their annual HSA inflation adjustments for 2023, and they’re historical.
Let's start by reviewing 2023's adjustments.
For 2023, the self-only 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?
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 introduced health savings accounts (HSAs) and went into effect for all tax years after December 31st, 2003. The Medicare Prescription Drug Act also required the IRS to do annual cost-of-living adjustments, starting in 2005.
In 2023, the IRS increased self-only and family contribution limits by $200 (5.48%) and $450 (6.2%). The next closest year? 2007, when the IRS adjusted self-only 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).
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.
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.
"The most recent changes in the HSA amounts were the largest we have ever seen since the program began in 2004. But that was primarily due to the fact that the change in inflation over the previous 12 months was around 8 percent instead of the 3 percent annual average we had been used to."
- Roy Ramthun, Founder & President of HSA Consulting