QUESTION: Our company is thinking about adding a high-deductible health plan (HDHP) option in 2020. If we decide not to offer HSAs through the workplace, could employees who elect the high deductible health coverage establish their own HSAs?
ANSWER: Eligible employees can establish their own HSAs outside the employment context. Establishing an HSA does not require employer involvement, and eligibility for contributions is not affected by whether an individual is employed. Employees should make their own eligibility determinations. Here is a brief overview of the requirements.
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HDHP Coverage. To be eligible, an individual must be covered by an HDHP that meets certain minimum deductible and maximum out-of-pocket expense requirements. For 2020, the HDHP deductible for individual (self-only) coverage must be at least $1,400 and the out-of-pocket expenses that the covered individual is required to pay (for deductibles, copays, and other amounts, but not premiums) may not exceed $6,900. For family coverage, the HDHP deductible must be at least $2,800 and the out-of-pocket maximum may not exceed $13,800. (Family coverage cannot have an “embedded” deductible—i.e., an individual deductible within the family deductible—that is lower than the minimum required deductible for HDHP family coverage.) These amounts are indexed for cost-of-living changes, which means that they may be adjusted annually. An HDHP can cover preventive care on a first-dollar basis and can have higher out-of-pocket maximums for out-of-network care.
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Impermissible Coverage. In addition to having HDHP coverage, an individual generally cannot have health coverage other than HDHP coverage, except for certain disregarded coverage. Disregarded coverage falls into two categories: permitted insurance and permitted coverage.
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Permitted insurance includes insurance (1) that is limited to workers’ compensation, tort liabilities, liabilities relating to ownership or use of property (e.g., homeowners or auto insurance), or similar liabilities specified by the IRS; (2) for a specific disease (e.g., cancer insurance); or (3) that pays a fixed amount per day (or other period) for hospitalization (e.g., hospital indemnity insurance).
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Permitted coverage includes coverage (through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care.
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Individuals must carefully consider whether any of their employer-provided benefits might be impermissible non-HDHP coverage. For example, coverage under a health FSA (through the individual’s or a spouse’s employer) generally is impermissible non-HDHP coverage, although a limited-purpose health FSA that reimburses only dental or vision care expenses (expenses that can be paid by permitted coverage) would not be impermissible. Married individuals should note that if either spouse has disqualifying non-HDHP family coverage that covers the other spouse, then neither spouse is HSA-eligible.
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Tax Dependent Status. An individual who can be claimed as someone else’s tax dependent is not HSA-eligible.
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Medicare Entitlement. An individual who is entitled to Medicare (i.e., eligible and enrolled) is not eligible to contribute to an HSA. Any months of retroactive Medicare entitlement must be taken into account for this purpose.
For more information, see EBIA’s Consumer-Driven Health Care manual at Sections VIII.C (“What Steps Must an Individual Take to Establish an HSA?”), IX (“HSAs: Who Is Eligible?”), X (“HSAs: Required HDHP Coverage”), and XI (“HSAs: Other Permissible/Impermissible Types of Coverage”).
Contributing Editors: EBIA Staff.
