Four HRA Plan Designs That Allow HSA Contributions
1/30/2012 12:03 PM
There is some confusion in the marketplace as to whether employees can make HSA contributions if they are covered by their employer’s HRA. The basic answer revolves around the design of each HRA program and whether that is disqualifying coverage or not.
A look at what the Internal Revenue Code says about Health Savings Accounts (HSAs) will help. It states that any month an individual makes an HSA contribution, the individual must have current coverage under a qualifying high deductible health plan (HDHP), and cannot be covered by any other health plan that provides coverage for a HDHP benefit prior to satisfying the regulatory minimum annual HDHP deductible unless it is “permitted coverage.”
Any coverage that provides a benefit for medical care reimbursement prior to satisfying the HDHP deductible is considered “disqualifying” coverage. This disqualifying coverage includes a Health Care FSA and/or an HRA that reimburses expenses prior to satisfying the regulatory HDHP minimum deductible.
However, several types of HRA plan designs will permit HSA contributions:
Limited Purpose HRA
This HRA is designed to reimburse only dental or vision expenses. Therefore, the HRA is permitted health coverage, allowing employees who want to make HSA contributions to do so if they meet the other requirements for making the contributions.
If the employer has designed their HRA so that it is not compatible with an HDHP, employees who want to make HSA contributions would be ineligible if covered by the HRA. In order to allow those employees to make HSA contributions, the employer can create eligibility criteria so that these employees are ineligible for the HRA until they are no longer making HSA contributions.
This common type of HRA reimburses deductible expenses after the minimum regulatory HDHP deductible has been satisfied. By doing so, participants in the HRA do not have disqualifying health coverage through the HRA and can make HSA contributions so long as they satisfy the other regulatory criteria for making HSA contributions. For 2011 and 2012, the minimum HDHP deductible is $1,200 for single coverage and $2,400 for family coverage. Consequently, the Post-Deductible HRA would be designed to reimburse deductible expenses at some level that is greater than the minimum HDHP deductible.
If the HRA only reimburses expenses after the employee retires, the HRA is a Retirement HRA. Since active employees are not covered by the HRA, active employees who want to make HSA contributions are eligible to make those contributions if they meet the other eligibility criteria to make the contributions. Any retiree who is covered by an HDHP after retirement would be ineligible to make HSA contributions until no longer covered by the Retirement HRA and satisfies the other criteria for HSA eligibility (e.g., not enrolled in Medicare, etc.).
Employees desiring to make HSA contributions must consider the design of their employer’s HRA program. Contributions may be allowable but only in the type of HRA plans described above.