7 trickiest health savings account questions answered

Have questions about health savings accounts? IRS just gave answers to 42 of them. Is yours on the list?

It’s been four years since the feds gave their stamp of approval to health savings accounts (HSAs), but now companies and their employees are finally warming to the concept.

Maybe that’s why IRS thought it was a good time to put out some answers to the most common questions swirling around the subject (there’s no shortage of them).

IRS Notice 2008-59 covers everything from:

• Who’s eligible to participate
• How to handle high-deductible plans
• How to make distributions
• Which transactions are prohibited
• How to establish an HSA, and
• How to administer a program.

There’s too much in it to cover the Service’s position on every issue. But here are a handful of the most critical questions, complete with IRS’ answers.

Question #1: “I have an employee who’s also covered by a health reimbursement account (HRA) that pays and reimburses for vision, dental and preventative care expenses, plus premiums for accident and health plan coverage. Is he or she ineligible for an HSA?”

IRS’s answer: No. Just because an employee participates in an HRA doesn’t mean he or she can’t participate in an HSA. If you limit the HRA’s benefits to cover vision, dental, preventative care and the employee’s share of the high deductible health plan (HDHP), you’re golden.

Question #2: “What if an employee is covered by another plan that pays for medical expenses before the minimum HDHP deductible is reached, like a mini-med plan? Is that person eligible to be in an HSA?”

IRS’s answer: No. A person with a mini-med (or similar) plan in place cannot contribute to an HSA.

Question #3: “Which medical expenses can we take into account to determine when the HDHP deductible is satisfied for purposes of a flex spending account (FSA) or health reimbursement account (HRA)?”

IRS’s answer: The regs spell out what types of medical expenses may — and may not — be put towards the deductible. For example, if the HDHP doesn’t cover chiropractic care, then any of those expenses may not be counted towards the employee’s deductible. And even if the individual racks up legitimate expenses, they cannot be reimbursed until the deductible’s met.

Question #4: “How do we apply the maximum annual HSA contribution limits to a married couple when one has self-only HDHP coverage and the other has family coverage?”

IRS’s answer: The maximum contribution in that case is the maximum for family coverage. As for how the contribution can be divided? Leave it up to the spouses to agree on that.

Question #5: “Yikes! We were contributing to the HSA of an employee who we later realized was never eligible. Can we recoup our cash?”

IRS’s answer: Yes — but you’ll have to move fast. If you don’t recover the amounts by the end of that year, the amounts go on that employee’s W-2 as gross income and wages.

Question #6: “We’re looking to cut down on paper. Can we administer our HSA through a debit card that restricts payments and reimburses to health care?”

IRS’s answer: Yes, as long as employees have other ways to pay for health care than solely the debit card, like ATM withdrawals or by writing checks. (And you must make that clear to employees.) 

Question #7: “An employee wants to borrow money from her HSA — is that OK?”

IRS’s answer: No way — that’s considered a prohibited transaction. As more and more people find themselves in dire financial straits, you’ll come up against this in months to come. Be crystal clear — any loan or extension of credit between a plan and an employee is not allowable.