HSA/HDHP Limits Increase for 2024
IRS Addresses Claims Substantiation for FSA
Strategies to Improve Hiring Outcomes
HSA/HDHP Limits Increase for 2024
On May 16, 2023, the IRS released Revenue Procedure 2023-23 to provide the inflation-adjusted limits for health savings accounts (HSAs) and high deductible health plans (HDHPs) for 2024. 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
- 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 $4,150 to their HSAs in 2024, up from $3,850 in 2023. Eligible individuals with family HDHP coverage will be able to contribute $8,300 to their HSAs in 2024, up from $7,750 in 2023. Individuals aged 55 or older may make an additional $1,000 “catch-up” contribution to their HSAs.
The minimum deductible amount for HDHPs increases to $1,600 for self-only coverage and $3,200 for family coverage in 2024 (up from $1,500 for self-only coverage and $3,000 for family coverage in 2023). The HDHP maximum out-of-pocket expense limit increases to $8,050 for self-only coverage and $16,100 for family coverage in 2024 (up from $7,500 for self-only coverage and $15,000 for family coverage in 2023).
The IRS also provided the inflation-adjusted limit for excepted benefit health reimbursement arrangements (HRAs). For plan years beginning in 2024, the maximum amount that may be made newly available for an excepted benefit HRA is $2,100 (up from $1,950 for 2023).
The Affordable Care Act (ACA) requires health insurance issuers and self-insured plan sponsors to pay Patient-Centered Outcomes Research Institute fees (PCORI fees). The fees are reported and paid annually using IRS Form 720, the Quarterly Federal Excise Tax Return.
Form 720 and full payment of the PCORI fees are due by July 31 of each year, and generally covers plan years that end during the preceding calendar year. For plan years ending in 2022, the PCORI fees are due by July 31, 2023. For plan years ending in 2021, the PCORI fees were due by August 1, 2022 (since July 31, 2022, was Sunday).
Overview of the PCORI Fees
The PCORI fees were scheduled to expire for plan years ending on or after Oct. 1, 2019. However, a federal spending bill enacted at the end of 2019 extended the PCORI fees for an additional 10 years. As a result, these fees will continue to apply for the 2020-2029 fiscal years.
Calculating the PCORI Fee Payment
In general, the PCORI fees are assessed, collected and enforced like taxes. The PCORI fee is imposed on an issuer of a “specified health insurance policy” and a plan sponsor of an “applicable self-insured health plan” based on the average number of lives covered under the plan. Final rules outline a number of alternatives for issuers and plan sponsors to determine the average number of covered lives.
Using Part II, Number 133 of Form 720, issuers and plan sponsors report the average number of lives covered under the plan separately for specified health insurance policies and applicable self-insured health plans. That number is then multiplied by the applicable rate for that tax year ($2.79 for plan years ending on or after Oct. 1, 2021, and before Oct. 1, 2022, or $3.00 for plan years ending on or after Oct. 1, 2022, and before Oct. 1, 2023). The fees for specified health insurance policies and applicable self-insured health plans are then combined to equal the total tax owed.
Action Steps
To assess their obligations, employers should:
- Determine which plans are subject to the PCORI fees;
- Assess plan funding status (insured versus self-insured) to determine whether the issuer or the employer is responsible for the fees; and
- For self-insured plans, select an approach for calculating average covered lives.
The IRS provides helpful resources, including a chart on how the fees apply to specific types of health coverage or arrangements.
IRS Addresses Claims Substantiation for FSA
The IRS recently issued a Chief Counsel Advice Memorandum that provides important reminders about the claims substantiation requirements for flexible spending accounts (FSAs). These requirements apply to FSAs that reimburse medical expenses (health FSAs) and FSAs that reimburse dependent care expenses (dependent care FSAs).
The IRS memorandum explains that FSA expenses are not considered properly substantiated if employees self-certify expenses, if the plan uses sampling, if only amounts over a certain level are substantiated or if charges from favored providers are not substantiated.
In addition, dependent care expenses may not be reimbursed before the expenses are incurred. Dependent care expenses are incurred when the care is provided and not when the employee is formally billed or charged for (or pays for) the dependent care.
Reimbursements from FSAs that are not fully substantiated must be included in the employee’s gross income. Also, if a Section 125 cafeteria plan does not comply with the substantiation requirements for FSAs, the plan will no longer qualify for favorable tax benefits. To avoid these negative tax consequences, employers with FSAs should review their substantiation procedures to make sure they comply with IRS rules.
Strategies to Improve Hiring Outcomes
As employers struggled to respond to trends such as the Great Resignation and quiet quitting, many quickly hired employees to cut costs and fill open positions. Unfortunately, reactionary hiring often didn’t work for either party. According to a USA Today poll, only 26% of job switchers liked their new position enough to stay. For this reason, many employers are shifting their focus to prioritize the quality of new hires and evaluate how their recruitment and onboarding practices can lead to more positive hiring outcomes.
This article provides guidance on the importance of hiring outcomes and strategies employers can use to find the right employees for open positions and improve such outcomes.
Hiring Outcomes
A successful hiring outcome occurs when an employer hires the right individual for an open position. The measurements of successful hiring may vary depending on an organization’s goals and objectives. Generally, standard measures of positive hiring outcomes include employee performance, job satisfaction and organizational loyalty. A negative hiring outcome can occur when an organization hires an individual that’s ill-suited for the position or is not a good cultural fit.
The Importance of Hiring Outcomes
When the wrong person is hired, it can have numerous consequences for an organization. According to Northwestern University, a bad hiring decision can cost a company at least 30% of that employee’s annual salary. Hiring the wrong people can also reduce employee morale, damage company culture, increase employee turnover, damage employer branding and create unsafe workplaces.
On the other hand, when an employee is a good fit for their position and organization, they’re more likely to be productive, loyal and remain with their company for longer. This ultimately benefits revenue by reducing hiring and onboarding costs and keeping knowledgeable, productive employees at the company.
Improving Hiring Outcomes
Employers’ strategies are critical to ensuring organizations consistently hire employees that align with organizational goals. Here are strategies for employers to consider:
- Focus on fit. A recent survey found that more than half (55%) of people lie on their resumes. Therefore, it’s crucial that employers find ways to establish a candidate’s trustworthiness. Common methods include reference checks, skills assessments and behavioral-based interviewing. Additionally, employers should pay attention to how well an individual aligns with an organization’s goals and desires, not just the qualifications listed on their resume. It may be beneficial to observe how job applicants interact with other people in the office to understand how an individual would interact with team members and contribute to company culture.
- Be transparent. Communicate regularly and clearly with job applicants during interviews and hiring. This will improve trust and make them feel valued by an organization. Employers should also honestly describe job expectations and organizational goals to help candidates make informed decisions about job positions. Listing pay ranges alongside job postings is another way to establish trust and increase efficiency, as it reduces the risk of losing job candidates over salary expectations far along in the hiring process. In fact, workers are more likely to apply for jobs that include a pay range in the job posting, according to recent data from global employment website Monster. This can increase an employer’s talent pool and ultimately lead to better hiring outcomes.
- Emphasize diversity. Diversity, inclusion and equity (DE&I) is a critical element many employees consider when deciding to stay with a company. A survey by Goodhire found that 81% of employees would consider leaving their job if their employer wasn’t committed to DE&I. In addition to helping attract and retain employees, a commitment to DE&I can also improve an organization’s bottom line. According to management consulting company McKinsey, diverse and inclusive companies are 35% more likely to outperform competitors financially.
- Assess recruitment strategy. Recruitment methods factor into the type of candidates applying for open positions. Recent research by software company Yello found that 54% of Generation Z workers won’t complete a job application if the method is outdated. Simplifying the application process with technology like mobile-friendly applications and applicant tracking systems can help employers compete for talent.
- Consider temporary-to-permanent (temp-to-perm) hiring. With this type of hiring, employers hire workers on a temporary basis for a trial employment period before hiring decisions are finalized. This enables employers to fill positions without committing to permanent employment, reducing the risk of poor hiring decisions. However, employers who use this method of hiring should be are of the potential drawbacks, such as agency fees, less committed workers and insufficient training for temporary hires.
- Use artificial intelligence (AI). Although a relatively new technology, AI can help evaluate and screen potential candidates. It can improve candidate experience and increase efficiency and fairness. However, employers who use AI for hiring processes should also be aware of potential accessibility issues, as it may intentionally or unintentionally screen out job seekers with disabilities. Unintentional discrimination may occur if an AI algorithm relies on historical data sets that use benchmarking resumes and other job requirements that are biased or discriminatory.
Employer Takeaway
As labor market conditions shift, employers should assess their hiring and recruiting strategies to improve positive outcomes. Employers who prioritize hiring the right person the first time may experience reduced employee turnover, improved company culture and increased revenue.
