Insights

Would receiving treatment provided by the Department of Veterans Affairs (VA) or the military make an employee ineligible for HSA contributions?


Veterans with a disability rating who receive care from the VA are still eligible for HSA contributions. However, veterans without a disability rating who receive care from the VA within the last three months and active duty military service members or veterans who are enrolled in TRICARE aren’t eligible to contribute to an HSA.

As background, individuals are only eligible to make or receive contributions to an HSA if they have qualifying HDHP coverage and no impermissible coverage. Impermissible coverage is generally defined as coverage that pays for coverage before the HDHP statutory deductible has been met (below $1,300 for single coverage and $2,600 for family for 2017). Coverage that pays before the statutory deductible is met is known as “first dollar coverage,” and it includes many other types of coverage, such as Medicare, general-purpose health FSAs, general-purpose HRAs and TRICARE.

While VA coverage also previously rendered veterans ineligible for contributing to an HSA, beginning in 2016, receipt of VA hospital care or medical services for a service-connected disability won’t adversely affect an individual's ability to make HSA contributions, regardless of when the VA care or services were provided. A service-connected disability is a disability that was incurred or aggravated in the line of duty in the active military, naval or air service. The new rule applies to coverage under programs administered by the VA (it doesn't apply to TRICARE).

Interestingly, though, this rule seems like it would be difficult to administer since the employer wouldn’t really know if the coverage a certain employee received from the VA was for a service-connected disability. To help ease the administrative burden, the IRS announced a rule of administrative simplification under which any hospital care or medical services received from the VA by a veteran with a disability rating from the VA may be disregarded for purposes of determining HSA eligibility.

So as long as the medical services from the VA are for a veteran with a disability rating from the VA, the services/coverage won’t disqualify the individual from HSA eligibility. Assuming they’re otherwise eligible for the HSA, they could contribute. The IRS simplification rule is found in IRS Notice 2015-87, Q/A-20, which is available here.

However, employees who don’t have a disability rating and received care from the VA within the last three months and employees who are enrolled in TRICARE wouldn’t be eligible for HSA contributions. Accordingly, any employee on TRICARE would have to drop that coverage before making or receiving any HSA contributions.