Benefits, Compliance

The Ins and Outs of Health Savings Accounts

Kelly Eckman
October 25, 2016

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With many employers moving to high deductible health plans (HDHPs) to control plan costs, many employees are gaining access to Health Savings Accounts (HSAs) for the first time.

HSAs are a hot topic in the benefits world these days. Whether you’re new to HSAs or looking for a refresher, you will find some key questions and answers regarding the ins and outs of HSAs below.

1. What kind of medical expenses are eligible for HSA reimbursement?

The list of eligible categories is too robust to mention here, but the general rule of thumb is that qualified medical expenses are for the diagnosis, cure, mitigation, treatment, or prevention of disease. Eligible expenses are those outlined in IRS Publication 502.

2. Can I pay for anyone’s medical expenses with my HSA?

No, a HSA holder can only use the HSA to pay for his or her own qualified medical expenses or those of his or her spouse or tax dependents. In the case of divorce, a child is considered an eligible dependent for either parent, regardless of who claims tax dependency.

3. Can you contribute to a HSA if you are enrolled in Medicaid or Medicare?

No, you cannot contribute to a HSA if you are enrolled in these programs. If you have an existing HSA, you can continue to pay for qualified medical expenses with the remaining dollars.

4. Can I have a health Flexible Spending Account (FSA) and a HSA?

Maybe. If you have a general-purpose FSA that allows you to reimburse medical, dental, and vision expenses, you cannot contribute to a HSA. If you have a limited-purpose FSA that only allows you to reimburse dental and vision expenses, you can contribute to a HSA (assuming you meet the other eligibility requirements for an HSA).

5. What happens if someone enrolled in Medicaid, Medicare, or a general-purpose FSA made HSA contributions?

Impermissible contributions should be removed from the HSA account to avoid the 6% excise tax penalty. These contributions must be removed prior to the tax filing for that year (so April 15 of the following year) to avoid any penalties.

6. Can an employee change HSA contributions during the plan year?

Yes, unlike a Flexible Spending Account (FSA), an employee can make changes to HSA contributions during the plan year without experiencing a qualifying life event.

7. Can I contribute to a HSA if I’m only enrolled in a HDHP for part of the year or only eligible for part of the year? What if I am enrolled in a HDHP for part of the year and Medicare for the rest of the year?

 HSA eligibility is determined on a monthly basis, based on whether or not you are eligible as of the first day of each month. If you switch from a PPO plan to a HDHP, or enroll in Medicare mid-year, you would need to calculate your HSA eligibility for each month to determine your annual maximum contribution limit.

Example: Jane works at ABC Employer and is enrolled in employee-only coverage in the HDHP plan; she has no other coverage and is eligible to contribute to a HSA. On September 1, she begins working at XYZ Employer and enrolls in its PPO plan. Jane was HSA eligible for the months she worked at ABC Employer, but lost eligibility when she enrolled in the XYZ Employer PPO plan in September. How much can she contribute to her HSA in 2016?
Jane was eligible for eight months so she can contribute 8/12 of the maximum annual contribution at the Individual level, since she was enrolled in employee-only coverage. The 2016 Individual maximum is $3,350, so 8/12 of this limit is $2,233.33. If Jane already contributed more than $2,233.33 to her HSA, she should remove excess contributions prior to April 15, 2017 so she does not get in trouble for over-contributing for the year.

8. If my employer contributes to my HSA, does that count toward my maximum allowable contribution for the year?

Yes! Any money contributed to your HSA counts toward the annual maximum contribution limit. This includes any money your employer contributes, your individual contributions through payroll deductions, and any after-tax contributions made to the account (by you or anyone on your behalf).

These are just a few examples of the common HSA questions we receive. We encourage you to share this list with your employees to help them better understand their HSA accounts.

Have a HSA question of your own? Let us know and we will try to help—you might even find it in the next edition of our HSA Q&A.

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