Note for Employers: Health Savings Accounts (HSAs) are becoming a more common part of average Americans’ lives. Paired with HSA-qualified health plans, they cover a growing number of Americans’ health care costs and play an important role in their future.
This post is one of several that will appear in the coming months to help your employees understand HSAs better and use them strategically. The posts are excerpts from “HSA Owner’s Manual, Second Edition” by Todd Berkley (published by Tate Publishing, 2015). Todd Berkley is Senior Vice President and Managing Director for BenefitWallet®, A Xerox Solution.
To be eligible to contribute to an HSA account you must be covered by an HSA-qualified plan (referred to as a High Deductible Health Plan). Your insurance company will usually make it clear whether or not a plan is HSA-qualified, but if you are not sure whether the plan is qualified, you should check with the insurance regulator in your state.
Whether you are HSA-eligible for a month is determined by whether you are eligible on the first day of the month.
Review your health coverage carefully. If you are married, review your spouse’s coverage and benefits as well. Either of you could have coverage that would make both of you ineligible to participate in an HSA program, even if you are covered by an HSA-qualified plan.
Your HSA eligibility is determined by coverage that reimburses your expenses. Other members of your family can be ineligible to participate in an HSA program (a spouse who’s enrolled in Medicare, children who are tax dependents), but if the situation that makes them ineligible does not impact you, you can become or remain HSA-eligible.
Individuals do not have to be health plan subscribers to be HSA-eligible. (If you are purchasing the plan through your employer, for example, you are the subscriber, and other individuals covered under your policy are health plan “members.”) Anyone covered by an HSA-qualified plan who meets all HSA eligibility criteria can open and contribute to an HSA but is not required to do so.
Be very careful of participating in a Health FSA (Health Flexible Spending Arrangement) or HRA (Health Reimbursement Arrangement) program offered by your or your spouse’s employer. These programs, if not designed as limited reimbursement programs, can make you ineligible to open and contribute to an HSA, even if you are otherwise eligible. Your employer should catch this mistake and make sure that you do not enroll, but you should not count on someone else to prevent this situation.
Check with your spouse to make sure that he or she has not signed up for coverage that can disqualify you from HSA eligibility. The most common situation is that your spouse enrolls in a general Health FSA program that automatically entitles you, as the spouse, to reimbursement.
Also remember that if you or your spouse’s employer offers a Health FSA with a grace or rollover period, you need to spend that balance to zero before the end of the 12-month plan year to become HSA-eligible at the beginning of the extended period.
You can have certain other coverage and remain HSA-eligible. This permitted coverage and permitted insurance is a very specific and finite list. You can be enrolled in insurance plans that do not constitute major medical coverage, in plans that only pay a flat sum or daily amount when you are hospitalized or in treatment, or in discount (drug) card programs.
You do not lose your HSA eligibility if you receive and pay for services outside your health plan, as long as you do not receive reimbursement from any source that’s not permitted insurance or permitted coverage (e.g., acupuncture, biofeedback).
Do not enroll in Medicare when you are first eligible if you want to remain HSA-eligible. Once you enroll in any Part of Medicare, you are effectively locked out of further contributions to the HSA program. Understand and weigh your options carefully before enrolling in Medicare (or before receiving Social Security benefits at age 65 or older, which automatically enrolls you in Medicare Part A).
If you are entitled to receive care through the VA health care system, weigh the medical and financial benefits of receiving this non-preventive, non-service-connected care at a VA facility against the temporary loss of HSA eligibility.
The author is not a lawyer and this article does not constitute legal advice. For more detailed information, consult the HSA Owners’ Manual by Todd Berkley.