The Answers to Those Tricky HSA Eligibility Questions

If you’re like most HR or employee benefits professionals, you’ve probably been answering a lot of questions lately.  Questions about plans, coverage, cost… the list goes on.  Here at ABG we’ve also been answering our fair share of questions. 

I’ve noticed questions about health savings account (HSA) eligibility come in again and again.  I thought it would be worthwhile to share the answers to a few common questions with you.  Hopefully this saves you some time and energy.

Q:  I know an employee can’t contribute to an HSA if they’re covered by Medicare, but what if an employee’s spouse is covered by Medicare?  Can the employee still contribute to an HSA?

A:  Yes, as long as the HSA owner is not covered by Medicare, they can still fund a HSA.  Additionally, if the spouse is also covered by the employer’s high deductible health plan, the employee can contribute up to the family HSA maximum.  The employee can also continue to use their HSA funds to pay the spouse’s out-of-pocket health care costs, regardless of the spouse’s coverage.

Q:  If our company does not offer a group health plan, can we still allow employees to fund HSAs through pre-tax payroll deductions?  What about making employer contributions to employees’ HSAs?

A:  Yes, an employer who does not sponsor a group health plan may still allow employees to fund HSAs and they may also make employer contributions to their employees’ HSAs.  Here are a few considerations:

-          The employer must have a Section 125 plan document in place in order to allow employees to fund HSAs with pre-tax payroll deductions.  This is the case regardless of whether the employer offers a group health plan.

-          If there is no Section 125 plan in place, employer HSA contributions are subject to comparability rules, meaning similarly situated employees must receive the same contribution.

-          If there is a Section 125 plan in place, the comparability rules do not apply.  Instead, employer HSA contributions are included in the applicable Section 125 nondiscrimination tests.

Q:  If an employer does offer an HSA-qualified group health plan, but an employee opts to take coverage elsewhere, such as with their spouse or on an individual policy, can the employer allow that employee to fund an HSA?

A:  This is the employer’s choice.  There is nothing in the regulations that would prohibit the employer from allowing this employee to fund an HSA.  As long as the employee meets the eligibility requirements under the employer’s Section 125 plan, they can fund the HSA with pre-tax payroll deductions.  Remember, the employer saves FICA tax on all funds employees contribute to HSAs via pre-tax payroll deductions.

Q:  What responsibility does an employer have to ensure an employee’s HSA eligibility before allowing them to contribute to an HSA, or funding an HSA on their behalf?

A:  The employer’s responsibility to ensure employees’ HSA eligibility is very limited.  The employer would be responsible for ensuring any health coverage sponsored by them (the employer) is HSA-compatible.  Beyond that, the responsibility to ensure HSA eligibility is almost entirely on the employee.  Employers may rely on an employee’s representation as to HSA eligibility.  Employer’s allowing pre-tax HSA contributions must have “reasonable belief” an employee’s HSA contributions are excludable from income.  It may be prudent to ask employees covered by outside health plans to make some sort of declaration as to their HSA eligibility, but it is not required.

Hopefully, these answers will rescue you from your next head-scratcher. If you have other questions, don’t hesitate to reach out to your friendly neighborhood HSA experts. 

The Author: Sadie Wuerflein, CFC
Compliance Specialist – FSA/HRA/HSA
abgncs.com
swuerflein@abg-mn.com

Disclaimer: This blog is of an informative nature and should not be taken as advice. Please work with the appropriate parties for those services.