HSAs (Health Savings Accounts) are designed to help employees put aside money to pay for extra medical expenses on a pre-tax basis, both have protocols around maximum contributions and permissible distributions, and both have remarkably similar sounding acronyms. However, the similarities for the most part, stop here.
Some researches often answer the questions from employers who are confused as to how these two types of accounts impact each other. Most of these questions are a result of misunderstanding 2019 HSA eligibility rules, or applying these rules to another account called FSAs. In this article, we will briefly discuss both HSAs and FSAs independently, and then discuss how they impact each other in terms of eligibility.
Health Savings Accounts (HSAs)
What is an HSA?
This account is often referred to as the Consumer Driven Health Plan (CDHP). An HSA is an account through which eligible individuals can make contributions, and receive employer contributions, on a tax-free basis through an employer’s cafeteria plan. Whether an individual has the eligibility to contribute to 2019 HSAdoes not impact whether the individual is eligible for the underlying high deductible health plan. Furthermore, the individual and his or her spouse and dependents do not need to be eligible to contribute to it, to take tax-free distributions from that account for qualified medical expenses. An account is owned by the individual and not by the employer. Thus, individuals will have access to the account after employment with an employer ends.
To have the eligibility to contribute to (or forward contributions to) an account, two things must be true: First, the individual must be covered under a qualified high deductible health plan (QHDHP). Second, the individual must not be covered by disqualifying other coverage.
A high deductible health plan is deemed qualified, and allows a person to contribute to an HSA, if it meets both the minimum annual deductible standards and the maximum out-of-pocket limit standards set by the IRS.
As an additional to being enrolled in a QHDHP, an individual who may not be enrolled in any other health care plan that is not a QHDHP, before the minimum annual deductible is met, to be HSA eligible. Examples of other coverage that will cause a person to lose HSA eligibility are other major coverage for medical purposes, general purposes health FSAs, HRAs (Health Reimbursement Arrangements), and Medicare. Contributions to an HSA are still subject to limits set by the IRS. The limits are updated annually, and are impacted by a certain number of people covered by the qualified HDHP, the number of months out of the year an individual is eligible for an HSA, and the individual’s age.