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Will Employees’ Participation in Our Company’s Health FSA Prevent Their Spouses or Adult Children From Contributing to an HSA?



QUESTION: Our company sponsors a salary reduction health FSA that reimburses the qualifying medical expenses of participating employees and their spouses, children under age 27 as of the end of the year, and tax dependents for health coverage purposes. We do not currently offer high-deductible health plan coverage, but some employees’ spouses and adult children have it through their own employers. If an employee’s spouse or adult child is otherwise eligible to make contributions to an HSA, will that eligibility be lost if the employee participates in our health FSA?

ANSWER: Some health FSA designs can preserve HSA eligibility—for example, arrangements that reimburse only dental, vision, or preventive care expenses. But employees’ participation in a typical general-purpose health FSA that reimburses any qualifying medical expense and is not limited to the expenses of the employee will prevent a spouse from contributing to an HSA. Adult children whose expenses can be reimbursed by a general-purpose health FSA will also be ineligible to make HSA contributions. This is because those persons will be treated as having disqualifying coverage, even though the coverage is provided by your company and any reimbursements are paid to your employees (not to their spouses or adult children). If carryovers or grace periods are offered under a general-purpose health FSA, this can also affect the HSA eligibility of spouses and adult children, although there are ways to prevent this (e.g., through plan design).

Employees participating in a general-purpose health FSA cannot protect the HSA eligibility of their spouses and adult children by simply not submitting their expenses for reimbursement. However, if your company’s health FSA allows participating employees to limit the individuals whose expenses can be reimbursed, employees may be able to preserve HSA eligibility for their spouses and adult children by electing in advance to use the health FSA only for their own expenses.

For more information, see EBIA’s Consumer-Driven Health Care manual at Sections XI.D (“General-Purpose Health FSA or HRA Coverage Will Prevent HSA Eligibility”) and XI.E (“Specially Designed Health FSA or HRA Coverage Will Not Prevent HSA Eligibility”); see also EBIA’s Cafeteria Plans manual at Sections XVI.B.3.a (“How Does a Health FSA Grace Period Affect HSA Eligibility?”) and XXI.H.4.a (“How Do Carryovers Affect HSA Eligibility?”).

Contributing Editors: EBIA Staff.

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