Health savings accounts (HSAs) are a versatile benefit that has been growing in popularity due to the unique triple tax savings and investment opportunities. However, offering an HSA to employees for the first time can cause some headaches! The way an employer’s health plan is designed determines whether or not they can offer an HSA and who’s eligible. Here are some tips to help the implementation of an HSA go smoother.

    Is your HDHP HSA-compatible?

Did you know that not all high deductible health plans (HDHPs) are HSA-compatible? In order for a plan to be HSA-compatible for 2025, there’s a required minimum deductible of $1,650 (single coverage) and $3,300 (family aggregate coverage). If your plan has an embedded deductible for families, the minimum deductible for any individual must be at least $3,300. In addition, for a plan to be HSA-compatible, it must have a lower maximum out-of-pocket than what is required under the Affordable Care Act (ACA). For 2025, the maximum out-of-pocket is $8,300 single and $16,600 family.

All coverage (other than preventive care) must be subject to the deductible before the health plan can pay, which includes prescription drugs. Any copayments that a plan has should not kick in until after the minimum deductible has been satisfied.

Even if you believe your plan is HSA-compatible, it’s a best practice to confirm this with your insurer.

   Does your cafeteria plan need updating?

Employers who will allow any HSA-eligible individuals to contribute to their HSA on a pre-tax basis through payroll deductions need to have a cafeteria plan that allows for this. Be sure to review your cafeteria plan to see if employee pre-tax HSA contributions are permitted under your plan. If your plan does not include this, you’ll want to amend your plan to make it possible.

If you allow for employee contributions on a pre-tax basis, then any employer contributions are also considered to be made through your cafeteria plan. This means that both pre-tax employee and employer contributions must be included in your nondiscrimination testing.

If you are considering defining your employer contributions within your cafeteria plan, you may wish to specify:

• • The amount of the contribution
  • The timing of the deposits
  • Who is eligible for the contribution (including treatment of new employees mid-year)
  • Treatment of employees who don’t open their HSA until mid-year

   Are you thinking about offering an employer contribution outside a cafeteria plan?

Employers who elect to make an employer contribution outside of a cafeteria plan (and who do not permit pre-tax employee contributions) are subject to comparability rules and have limitations on what contribution structures are permitted. Employers who violate this would be subject to a 35% excise tax. In addition, employers must provide written notice to employees about the contributions and the impact of not opening an HSA timely. If an employee delays opening their HSA, the employer is subject to including interest earnings on their contribution.

   Is your Health Care FSA compatible with an HSA?

Employers can offer a health care flexible spending account (FSA) along with an HSA, however, there are a few things to be aware of. Employees who wish to make contributions to an HSA (or receive employer contributions in an HSA) cannot have a general-purpose or standard health FSA through their employer or through their spouse’s employer. A general-purpose or standard health FSA is considered disqualifying coverage. In order to be HSA-eligible, employees would need to elect a limited health FSA which does not reimburse medical expenses, but rather reimburses only dental and vision expenses.

Employers who do not currently offer a limited health FSA can add one and offer both the limited health FSA and standard health FSA to all employees.

Health Care FSAs can lead to additional headaches if employers do not prepare for them in advance of HSA implementation:

Grace Period and Rollover

Employers also need to be aware of the impact that grace period and rollover have on HSA-eligibility. Grace period and rollover from one year can impact HSA eligibility for participants in the following year. Read more about this at www.ebcflex.com/hsaeligibility.

Employers have opportunities to amend their plan before the end of the current plan year to minimize the impact of grace period and rollover on HSA eligibility for the new plan year. Talk with EBC to learn about your options today!

Plan Year Alignment

When an employer currently offers a standard health FSA and then adds an HSA-compatible HDHP mid-year, any employees currently enrolled in the standard health FSA would have disqualifying coverage and would not be HSA-eligible until after the FSA coverage ends. Enrollment in the HSA-compatible HDHP mid-year is not a permitted election change event that would allow employees to terminate the health care FSA. Employers may want to run a short plan year so that their health care FSA elections occur at the same time that employees make their medical plan elections.

   Is your HRA compatible with an HSA?

Health reimbursement arrangements (HRAs) can be stacked with HSAs, provided the HRA does not reimburse any medical expenses prior to the HDHP deductible being satisfied. This can be arranged in one of two ways:

1. The HRA can be designed to reimburse only dental and/or vision expenses.
2. The HRA can be designed to reimburse deductible, coinsurance, or medical copayment amounts only after the employee pays the required minimum deductible first.

   Do your employees understand if they are HSA-eligible?

Communication is key!  It is important for individuals to understand if they are eligible for an HSA before they open an account and make contributions (or receive employer contributions). To help educate and inform employees, it’s recommended that employers provide their employees with the eligibility requirements:

1. Must be enrolled in an HSA-qualified HDHP.
2. Not enrolled in any disqualifying coverage – including a standard health FSA, or a spouse’s standard health FSA.
3. Not enrolled in Medicare.
4. Not another individual’s tax dependent.

Employers may wish to create a certification with the eligibility requirements and have employees sign it to certify they’re eligible before they can establish an HSA. For additional protection, this certification can include a statement that the employee must notify the employer if their HSA-eligibility status changes mid-year.

   Do your employees understand how much they can contribute to an HSA annually?

Individuals are only permitted to contribute up to the HSA contribution maximum as set by the IRS annually. The limits for 2025 are $4,300 for those with single coverage and $8,550 for those with family coverage. In addition, individuals aged 55 and up are eligible for a $1,000 catch-up contribution. Both employer and employee contributions are included, so the combined contribution amount cannot exceed the limit established by the IRS.

Some important notes about contribution limits:

• All contribution limits are based on an individual being eligible for the entire calendar year. If an individual is only eligible for a portion of the plan year, their contribution limit would generally be prorated.
• who gain eligibility mid-year have an opportunity to contribute more than the prorated limit, however, this opportunity is contingent on that individual remaining HSA-eligible for the entire following tax year. This is referred to as the last-month rule (or full contribution rule). Details on prorating and the last-month rule can be found in Publication 969.
• There is a special rule that applies to married couples. Married couples who are both HSA-eligible are limited to contributing no more than the family limit (plus applicable catch-up contributions) each tax year.

EBC is here for you!

It can be difficult for employers to implement an HSA – from knowing who’s eligible to communicating necessary information with HSA-eligible employees. At EBC, our job is to make the process from inquiring on information to plan administration as smooth as possible for you and your employees. We have created a communication toolkit that makes it easy to promote and educate your employees on HSAs. These toolkits offer various pieces of educational materials that will help employees understand the true value of their HSA and encourage them to use it to its full extent.

Please contact us if you have any questions on HSA eligibility or plan options.