Assuming an employee meets the other requirements to contribute to an HSA, will a spouse’s FSA or HRA jeopardize the employee’s HSA-eligibility?
April 18, 2017
Yes, it will, unless the spouse’s FSA or HRA is structured to be HSA-compatible. Generally, to be eligible to establish and contribute to an HSA, an individual must have qualifying HDHP and must have no impermissible coverage. Qualifying HDHP coverage means that the HDHP meets certain statutory requirements relating to the annual deductible and out-of-pocket amounts. Impermissible coverage is generally defined as coverage that pays for amounts under the statutory deductible for the qualifying HDHP ($1,300 for single coverage / $2,600 for family coverage for 2017). Impermissible coverage includes TRICARE, Medicare, a general purpose health FSA, a general purpose HRA, Medicaid and any non-HDHP that pays benefits before the statutory deductible has been met.
A spouse’s general purpose FSA or HRA that covers the employee and spouse and any dependents (most are structured this way) would also be impermissible coverage. This is because the employee’s qualified medical expenses are reimbursable through the spouse’s general purpose health FSA or the spouse’s general purpose HRA (giving the employee first dollar coverage without first meeting the statutory HDHP deductible).
Please see Revenue Ruling 2004-45, which states:
"A health FSA and an HRA are health plans and constitute other coverage under Section 223(c)(1)(A)(ii). Consequently, an individual who is covered by an HDHP and a health FSA or HRA that pays or reimburses Section 213(d) medical expenses is generally not an eligible individual for the purpose of making contributions to an HSA. This result is the same if the individual is covered by a health FSA or HRA sponsored by the employer of the individual's spouse."
It is not enough that the employee certifies that he will not submit his medical expenses for reimbursement through his spouse's general purpose health FSA or HRA. The mere fact that the employee's expenses are eligible for reimbursement under the spouse's plan makes the employee ineligible to establish an HSA or to make or receive HSA contributions.
However, an HRA and a health FSA can both be structured so as not to jeopardize HSA eligibility. If an employee or spouse is enrolled in a HRA or a health FSA that are limited purpose, post-deductible or a combination of the two, the employee would maintain his HSA eligibility because such coverage is HSA-compatible. To summarize:
- A limited-purpose health FSA or HRA only reimburses expenses related to dental, vision or preventive services.
- A post-deductible health FSA or HRA reimburses participants for any qualified medical expense, but only after the statutory HDHP deductible has been met ($1,300 for single coverage / $2,600 for family coverage for 2017)
- A combination health FSA or HRA would reimburse only dental, vision and preventive expenses before the statutory deductible has been met and all other qualified expenses after the statutory deductible is met.
Importantly, the health FSA or HRA have to be structured in one of these ways at the plan level. Participating employees cannot individually choose what kind of health FSA or HRA they have based on how they use it (although a plan may offer both general purpose and HSA-compatible FSAs and HRAs).