February 7, 2018

HSA Eligibility: A Cautionary Tale (article)

In recent years, a number of state legislatures have enacted health insurance mandates that are creating potential challenges for HSA eligibility. 

A health savings account (HSA) is an investment account that can be used in conjunction with a qualifying high deductible health plan (qualifying HDHP).  By its design, the HSA provides a triple tax advantage in that money contributed to the HSA is tax-favored, interest accrues on a tax-favored basis, and as long as the funds are used to pay qualified medical expenses, the funds are paid out on a tax-favored basis. 

In order to be entitled to this triple tax advantage, the individual must meet several criteria.  In particular, the individual must be covered by a qualifying HDHP.  One of the requirements of a qualifying HDHP is that it must meet a statutory deductible standard, which, for 2018 is $1,350 for single coverage; $2,700 for family coverage.  Medical expenses, with the exception of preventive health services, cannot be reimbursed by any health plan until the minimum statutory deductible of an HDHP is satisfied.  Some state laws require insured plans to cover items and services on a first dollar basis, i.e., prior to satisfaction of the deductible.  If the particular expense does not constitute preventive health services, then this causes the plan to be unqualified as an HSA-compatible plan. 

State laws expanding contraceptive-related services are particular culprits for creating problems in this arena.  Many contraceptive-related services, such as those required to be covered in accordance with the Affordable Care Act (ACA), constitute covered preventive services; however, it is uncertain whether other services qualify. Of particular note, some states require insured plans to cover male sterilization; however, whether these types of services are deemed to be preventive health services remains unclear.  Clarity on this matter from the Internal Revenue Service is currently being pursued by impacted individuals and entities. 

This is just one example of a state mandate that could jeopardize HSA eligibility.  It is important that every effort be made to ensure that a plan offered in conjunction with an HSA is, in fact, HSA-qualifying.

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. 

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