HSA n00b questions

[Bird In Hand]

My wife is taking a benefits-eligible position with her current employer in the next couple months.  The employer offers a HDHP plan with pre-tax/payroll HSA.  We're just starting to do the analysis to see if going with her HDHP makes sense -- right now, we and our kids are covered under my employer's PPO plan.

One thing I'm not sure about is HSA eligibility.  My understanding is that she is not eligible to contribute to her HSA if she is covered under my PPO.  But is that restriction based on possibility that she could be covered by my plan, or does it depend on whether I actually elect to have her covered during open enrolment?

Also, her employer contributes $750/yr to her HSA if she signs up for the HDHP with individual coverage.  If she's not eligible to contribute to the HSA because she's covered by my employer's plan (or because she could be covered, see previous question), I wonder if that affects her eligibility to have an HSA in the first place in order to get the $750/yr?

I'm really hoping she can get the HSA w/ $750/yr; her premiums are only ~$500/yr, so that's equivalent to $500 pre-tax with a 50% match, plus all the other tax advantages of HSAs.

[Chrissy]

One thing I'm not sure about is HSA eligibility.  My understanding is that she is not eligible to contribute to her HSA if she is covered under my PPO.  But is that restriction based on possibility that she could be covered by my plan, or does it depend on whether I actually elect to have her covered during open enrolment?

She may contribute to the HSA if she's on their high deductible plan regardless of any other factor.  She can then use the HSA money for you and the kids, regardless of your/their coverage.  If you switch the kids to that plan as well, it will give her the ability to contribute the max (up to $7,100/yr), but may not be worth it if you consume a lot of healthcare.

Now, if you wanted to put yourself on her plan, you might have to prove that you are INELIGIBLE for your own employer's health plan, because some plans are instituting their own rules about spouses.

[ctuser1]

My understanding is that she is not eligible to contribute to her HSA if she is covered under my PPO.  But is that restriction based on possibility that she could be covered by my plan, or does it depend on whether I actually elect to have her covered during open enrolment?

The later - i.e. it depends on whether you actually elect to have her covered.

Also, her employer contributes $750/yr to her HSA if she signs up for the HDHP with individual coverage.  If she's not eligible to contribute to the HSA because she's covered by my employer's plan (or because she could be covered, see previous question), I wonder if that affects her eligibility to have an HSA in the first place in order to get the $750/yr?

I'm really hoping she can get the HSA w/ $750/yr; her premiums are only ~$500/yr, so that's equivalent to $500 pre-tax with a 50% match, plus all the other tax advantages of HSAs.

AFAIK, she can't get the $750 from employer in HSA if she is not HSA-eligible.


How about you cover yourself and one kid, and she covers herself and one other kid? That way she can use the family limit for HSA contribution?

[ctuser1]

She may contribute to the HSA if she's on their high deductible plan regardless of any other factor.

Incorrect!

Google "HSA First Dollar Coverage" rules.

She can then use the HSA money for you and the kids, regardless of your coverage.  If you switch the kids to that plan as well, it will give her the ability to contribute the max (up to $7,100/yr), but may not be worth it if you consume a lot of healthcare.

Misleading!

It may very much be worth it even if you consume a lot of healthcare! If the OP is high income (note: they are a dual-income family) then it could very much be advantageous if they pay medical expenses out of pocket and let the HSA grow, even if they spend more on healthcare than annual HSA limit. There were threads on this topic in this very forum a couple of days ago.

[terran]

Agreed, the OP is on the right track and @Chrissy is either mistaken or wrote a post I've misinterpreted.

If your wife is covered under other insurance she is definitely not eligible to contribute to an HSA, which would include the employer contribution. However, the fact that you could elect to have her covered under your plan has no bearing. If your plan covers only you and your kids, not your wife, then she can contribute to her HSA to the individual limit.

As others have mentioned, it could be worth doing the math on more/all of your family being covered under her plan and contributing the family max to her HSA.

[Chrissy]

We're all saying the same thing.  And, ctuser1's idea of splitting the kids' coverage in order to be able to contribute more than the individual amount is genius.

Let's remember that the OP specifically mentions wanting the employer HSA contribution of $750/yr, and that OP may not be able to afford to use the HSA as a retirement investment vehicle.

[terran]

We're all saying the same thing.

Are you sure we are, though? You say "She may contribute to the HSA if she's on their high deductible plan regardless of any other factor" but if she's also covered under the OP's non-HSA compatible plan (in addition to her HSA compatible plan), or even if the OP funds a healthcare FSA, those are a couple of factors that would mean his wife is not eligible to contribute to an HSA. 

[Chrissy]

We're all saying the same thing.

Are you sure we are, though? You say "She may contribute to the HSA if she's on their high deductible plan regardless of any other factor" but if she's also covered under the OP's non-HSA compatible plan (in addition to her HSA compatible plan), or even if the OP funds a healthcare FSA, those are a couple of factors that would mean his wife is not eligible to contribute to an HSA.

Good point about the FSA.  I assume they're not trying to do both, because he doesn't mention one.

How would she be covered under her own employer's high deductible plan AND his PPO? 

[terran]

How would she be covered under her own employer's high deductible plan AND his PPO?

Because "right now, we and our kids are covered under my employer's PPO plan." As long as they make sure to take her off during the coverage period for which she wants to contribute to the HSA and make sure he doesn't contribute to a healthcare FSA they should be good, but those are a couple of big factors that would mean she's ineligible to contribute to an HSA even if she's on an HSA eligible plan. Not trying to beat up on you, I just don't want anyone to read your statement and think it means they're eligible to contribute to an HSA as long as they're on an HSA eligible plan without considering other factors.

[ctuser1]

... make sure he doesn't contribute to a healthcare FSA they should be good,....

It is quite complicated, ain't it?

I believe the test is if you have "first dollar coverage" for any medical stuff covered by HSA, you aren't eligible for HSA. But then, the term "first dollar coverage" can itself be very technical :-(.

Some limited-FSA's are okay. I have one. It only allows for reimbursement for Dental/Vision - and that apparently plays nice with HSA. I can contribute up to the normal FSA limit ($2700? next year) in this, while simultaneously contributing the HSA max in the HSA account. Employers have to set this up - as mine has.

HRA's that reimburse a fraction of coverate - however - are not okay. My wife once had one that only covered 50%, and it made her HSA ineligible due to that being counted as "first dollar coverage" :-(...

It's a mess, like any US tax topics are.

[Bird In Hand]

Thanks for the feedback, everyone.  I'll be crunching the numbers with all the possible combinations: wife alone or with kid(s) and/or me on her HDHP, and me alone or with kid(s) and/or wife on my plan.

My PPO (self + family) runs ~$6,400 plus a handful of co-pays each year.  Factoring in the employer HSA contribution, my wife's HDHP would range from $1,900 (nothing but preventative care) to $7,900 if we had pay max out of pocket.  Not even taking into consideration the potential use of HSA as a tax advantaged account for future medical expenses or 65+ retirement funds, the HDHP best case is a lot better than the PPO, and the worst case isn't terrible.

One way or another we'll have to figure this out soon...open enrollment is right around the corner!

I also appreciate the discussion about the FSA.  That's something we've been doing for a few years, and it sounds like it would be off the table if we use my wife's HDHP+HSA.

[Chrissy]

How would she be covered under her own employer's high deductible plan AND his PPO?

Because "right now, we and our kids are covered under my employer's PPO plan." As long as they make sure to take her off during the coverage period for which she wants to contribute to the HSA and make sure he doesn't contribute to a healthcare FSA they should be good, but those are a couple of big factors that would mean she's ineligible to contribute to an HSA even if she's on an HSA eligible plan. Not trying to beat up on you, I just don't want anyone to read your statement and think it means they're eligible to contribute to an HSA as long as they're on an HSA eligible plan without considering other factors.

terran, my replies are specific to the OP's case.  He states, "My understanding is that she is not eligible to contribute to her HSA if she is covered under my PPO," so that part is a given.

[Chrissy]

Bird In Hand, if I were you, I'd go with the HDHP plan.  In fact, my family DOES use my husband's HDHP plan, and my employer covers whatever it doesn't, leaving us to fill the HSA to the brim and keep it, which has been a huge boon.

ctuser1 talks about the First Dollar rule, but I'm not sure how your employer could offer a "HDHP plan + HSA" (that they contribute to, no less) only to have the HSA be ineligible because of the way the HDHP works.  I think this is only an issue if the HDHP doesn't come with the HSA option and you're trying to invest in an HSA on your own with a separate administrator.

@ctuser1 , can you educate us about this?

[ctuser1]

Bird In Hand, if I were you, I'd go with the HDHP plan.  In fact, my family DOES use my husband's HDHP plan, and my employer covers whatever it doesn't, leaving us to fill the HSA to the brim and keep it, which has been a huge boon.

ctuser1 talks about the First Dollar rule, but I'm not sure how your employer could offer a "HDHP plan + HSA" (that they contribute to, no less) only to have the HSA be ineligible because of the way the HDHP works.  I think this is only an issue if the HDHP doesn't come with the HSA option and you're trying to invest in an HSA on your own with a separate administrator.

@ctuser1 , can you educate us about this?

Actual IRS Rule discussing HSA eligibility and limitations: https://www.irs.gov/publications/p969

If a single employer offers both HDHP + HSA, they will probably make sure the plan is compatible with HSA. First dollar rule typically only comes into play when you have coverage options from multiple sources. e.g. both spouses working, or when you work but also eligible for medicare.

To be eligible for HSA, you need to have "high deductible" that you pay out of pocket. You can not have any kind of plan that pays you from the very first dollar of your cost. e.g.
1. FSA that can pay you from the first $$ of medical expenses.
2. Another PPO health plan that can provide partial coverage (say 80%) from the first $$.
3. HRA (like I mentioned my wife had) that pays 50% of each $ spent from the first $$ expense.
etc.
All these are explained in the IRS publication I linked above in much more detail.

In fact, when you say "and my employer covers whatever it doesn't", it is a situation where it's important that you are not inadvertently making yourself ineligible for HSA. The "Other health coverage" section in the publication I linked above might be relevant here.

Note: I am not a professional dealing with this topic. I have just used HSA under many different scenarios for over a decade and hence only know details of some of the scenarios that I encountered. Please don't mistake it as a substitute for professional advice.

[Chrissy]

In fact, when you say "and my employer covers whatever it doesn't", it is a situation where it's important that you are not inadvertently making yourself ineligible for HSA. The "Other health coverage" section in the publication I linked above might be relevant here.

Just in case someone's curious... the Feds actually took notice of my employer's fringe benefit, and investigated.  In the end, it's legal and we are not in conflict with HSA rules.  Participants may not double-claim expenses from the plan AND an HSA, nor can we claim HI premiums (previously, this was allowed).

[ericbonabike]

Tangential follow on question:

My employer is offering a HDHP and HSA for the first time ever next year.  They've said they'll contribute $2100 to the HSA.  Then I can put in another $7,400 for a total of $9,500 a year. 

My question is:  If I max this out, can I still max out my FSA?  And use those FSA dollars to pay for my out of pocket expenses each year, preserving the capital in the HSA? 


What I'd "love" to be able to do is, use the FSA dollars to pay for todays expenses.  Then use the HSA for later when I'm retired and contributing to FSA anymore.

[terran]

Tangential follow on question:

My employer is offering a HDHP and HSA for the first time ever next year.  They've said they'll contribute $2100 to the HSA.  Then I can put in another $7,400 for a total of $9,500 a year. 

My question is:  If I max this out, can I still max out my FSA?  And use those FSA dollars to pay for my out of pocket expenses each year, preserving the capital in the HSA? 


What I'd "love" to be able to do is, use the FSA dollars to pay for todays expenses.  Then use the HSA for later when I'm retired and contributing to FSA anymore.

Seems like you're getting some incorrect information here. The most you can contribute to an HSA when covered by family HSA eligible health insurance is $7100 plus $1000 catch up if you're over 50. This limit includes employer contributions.

You cannot contribute to an HSA if you also have a FSA unless the FSA is a limited purpose FSA that may only be used for vision/dental and/or childcare.

[ericbonabike]

Ah, I must have misread the original email.  I'm not sure if it  makes sense for me to contribute to an HSA right now.  I'm 4-5 years away from retiring.  My company says I can't invest the money in my HSA until it hits $50k.  It would take 7+ years to hit that 50k.   I'll be gone by then.

Tangential follow on question:

My employer is offering a HDHP and HSA for the first time ever next year.  They've said they'll contribute $2100 to the HSA.  Then I can put in another $7,400 for a total of $9,500 a year. 

My question is:  If I max this out, can I still max out my FSA?  And use those FSA dollars to pay for my out of pocket expenses each year, preserving the capital in the HSA? 


What I'd "love" to be able to do is, use the FSA dollars to pay for todays expenses.  Then use the HSA for later when I'm retired and contributing to FSA anymore.

Seems like you're getting some incorrect information here. The most you can contribute to an HSA when covered by family HSA eligible health insurance is $7100 plus $1000 catch up if you're over 50. This limit includes employer contributions.

You cannot contribute to an HSA if you also have a FSA unless the FSA is a limited purpose FSA that may only be used for vision/dental and/or childcare.

[terran]

Tangential follow on question:

My employer is offering a HDHP and HSA for the first time ever next year.  They've said they'll contribute $2100 to the HSA.  Then I can put in another $7,400 for a total of $9,500 a year. 

My question is:  If I max this out, can I still max out my FSA?  And use those FSA dollars to pay for my out of pocket expenses each year, preserving the capital in the HSA? 


What I'd "love" to be able to do is, use the FSA dollars to pay for todays expenses.  Then use the HSA for later when I'm retired and contributing to FSA anymore.

Seems like you're getting some incorrect information here. The most you can contribute to an HSA when covered by family HSA eligible health insurance is $7100 plus $1000 catch up if you're over 50. This limit includes employer contributions.

You cannot contribute to an HSA if you also have a FSA unless the FSA is a limited purpose FSA that may only be used for vision/dental and/or childcare.

Ah, I must have misread the original email.  I'm not sure if it  makes sense for me to contribute to an HSA right now.  I'm 4-5 years away from retiring.  My company says I can't invest the money in my HSA until it hits $50k.  It would take 7+ years to hit that 50k.   I'll be gone by then.

You can transfer money out of the workplace HSA to another HSA provider (I would suggest Fidelity) and invest there without fees and without account minimums. If you want to avoid the hassle of transferring you can contribute directly to your non-employer HSA, but you won't get the FICA tax deduction that likely comes from payroll deducted contributions. Obviously you'll still want them to contribute to their HSA since free money is free money.

It's likely that the employer HSA will charge a transfer fee for trustee to trustee transfers. If so, you can get around this by requesting a reimbursement just like you would for medical expenses (you don't have to give a reason) and then contributing to your other HSA. This is an indirect rollover, which can only be done once per rolling 12 month period (note that this is not the same as once per calendar year). You'll need to let the HSA provider you're rolling into know that this is a rollover contribution to make sure it's reported to the IRS correctly, but the reason you're requesting a distribution doesn't change how it's reported by the provider you're rolling out of, which is why you can just request a regular reimbursement distribution which shouldn't have a fee.