 Restrictions
on health savings accounts
|
 Dear
Tax Talk,
My employer is offering an HSA (health savings
account), in 2006, along with our regular premium-based health plans.
I currently have an FSA (flexible spending account) with my premium-based
plan. Would I be able to have an FSA with an HSA? The IRS Web site
was very unclear about this. Thank you!
-- Kathi
 Dear
Kathi,
An HSA is intended for those individuals
who don't have health insurance or have only major medical coverage. It can also
work to the benefit of some individuals who rarely utilize medical services and
are under a group plan that has significant employee costs.
An HSA is like an IRA, but instead of providing retirement
benefits, it provides a way to pay for medical expenses on a tax-free
basis. Publication
969 states that to be an eligible individual and qualify for
an HSA, you must meet the following requirements.
- You have a high-deductible
health plan.
- You have no other health coverage (except generally
you can have vision and dental).
- You are not enrolled in
Medicare.
- You cannot be claimed as a dependent on someone
else's 2004 tax return.
A high-deductible health plan, or HDHP, is one where
the plan deductible is at least $1,000 for single and $2,000 for
family. What this means is that your employer is trying to get you
to switch to a lower-cost health plan but allowing you to save in
an HSA. This might make sense for both you and the employer if you're
in relatively good health and rarely incur medical expenses. The
money you save on premiums will be going into a savings account
that is yours to keep for life, rather than to an insurance policy
that you may underutilize.
Publication 969 states that:
An employee covered by an HDHP and a health FSA
or an HRA, or health reimbursement arrangement, that pays or reimburses
qualified medical expenses generally cannot make contributions
to an HSA. However, an employee can make contributions to an HSA
while covered under an HDHP and one or more of the following arrangements.
- Limited-purpose
health FSA or HRA. These arrangements can pay or reimburse the items listed under
"Other health coverage" (see page 3 of Publication 969) except long-term
care. Also, these arrangements can pay or reimburse preventive care expenses because
they can be paid without having to satisfy the deductible.
- Suspended HRA. Before the beginning of an HRA
coverage period, you can elect to suspend the HRA. The HRA does
not pay or reimburse, at any time, the medical expenses incurred
during the suspension period except preventive care and items
listed under "other health coverage." When the suspension
period ends, you are no longer eligible to make contributions
to an HSA.
-
Post-deductible health FSA or HRA. These arrangements do not pay or reimburse
any medical expenses incurred before the minimum annual deductible amount is met.
The deductible for these arrangements does not have to be the same as the deductible
for the HDHP, but benefits may not be provided before the minimum annual deductible
amount is met.
- Retirement HRA. This arrangement pays or
reimburses only those medical expenses incurred after retirement. After retirement
you are no longer eligible to make contributions to an HSA.
What
this means is that you cannot continue to have your traditional FSA, but you might
be able to continue the FSA in a modified form. |
