Health Savings Account (HSA) Eligibility Rules

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HSAs continue to grow in popularity.

So why doesn’t everyone open an HSA? To be HSA eligible, you must meet certain requirements.

So exactly who is eligible to establish an HSA account and make an HSA contribution or have a contribution made on his/her behalf (e.g., by an employer)?

An individual must meet specific criteria to be HSA eligible. In order to open and make an HSA contribution, the individual must be eligible on the first day of that month and meet the following criteria:

  • You cannot be another individual’s tax dependent,
  • You cannot be entitled to (enrolled in) Medicare,
  • You must have current coverage under a qualifying high deductible health plan (HDHP)
  • You cannot be covered by any other disqualifying health plan that provides coverage for a benefit prior to satisfying the regulatory minimum annual HDHP deductible. There is certain "permitted coverage," that allows the individual to remain HSA eligible

Qualifying HDHP Coverage

For 2018, the minimum HDHP deductible is $1,350 for single plan coverage and $2,700 for family coverage (any coverage other than single plan). The maximum out-of-pocket (OOP) amounts are $6,650 for single coverage and $13,300 for family coverage. Preventive care is first dollar coverage under a HDHP and not subject to the deductible

For 2019, the minimum HDHP deductible is $1,350 for single plan coverage and $2,700 for family coverage (any coverage other than single plan).  The maximum out-of-pocket (OOP) amounts are $6,750 for single coverage and $13,500 for family coverage.  Preventive care is first dollar coverage under a HDHP and not subject to the deductible.

Permitted Coverage

IRS regulation specifies that permitted coverage includes coverage provided for preventive care, dental or vision services (through an insurance plan, limited health care flexible spending account (FSA) , dental or vision services through a health reimbursement arrangement (HRA), an HRA that does not reimburse until you have satisfied the minimum required HDHP deductible, or other coverage provided through specified disease insurance (e.g., a cancer care policy), accident or disability insurance, workers’ compensation, liability insurance or automobile insurance.

Disqualifying Coverage

Disqualifying coverage disqualifies the individual from contributing to an HSA. It does not disqualify them from receiving a distribution. Disqualifying coverage is any other coverage that pays or reimburses for medical expenses before the individual’s HDHP minimum deductible has been met.

Examples of disqualifying coverage include: An HRA that reimburses medical expenses, a standard health care FSA, secondary coverage with another insurer that is not HDHP coverage, coverage for prescription drug copays, Medicare, Medicaid or any coverage that pays first dollar.

The disqualifying coverage could be primarily in the individual’s name or it could be spousal coverage which covers the employee such as a spouse’s HRA that reimburses the individual’s medical expenses, a spouse’s standard health care FSA, a spouse’s insurance coverage that covers the individual as well, a spouse’s prescription drug copay plan or any spousal coverage that pays first dollar.

A spouse’s Medicare or Medicaid coverage would not cover the individual, so this is not disqualifying coverage.

Any contributions made by the employer and/or employee to an HSA for an individual that is not HSA eligible will be subject to tax consequences for the taxpayer.

The HSA can provide great opportunities for tax breaks on current or future medical expenses if you understand and follow the rules!

Categories: Benefits in General, Compliance | Tags: HSA , Health Savings Account , FSA , Flexible Spending Accout , HSA eligibility , IRS , Disqualifying coverage , Permitted Coverage , Minimum Deductible , Maximum OOP , 2019 HSA limits , 2018 HSA Limits | Return