Our client’s employee is enrolled in an HSA account and a limited purpose FSA for childcare. The employee’s wife is covered by her employer’s PPO plan. The employee and spouse both utilize the funds from the HSA and childcare FSA, as is permitted.
The employee’s wife is preparing to change jobs, and her new employer offers a PPO plan (higher cost) or a CDHP plus HRA account (lower cost). His wife prefers the CDHP, since it has a lower cost, but the HRA is not optional.
What effect does this have on the eligibility of the employee’s HSA if his wife opens an HRA?
Individuals who are covered by an HRA are not eligible for HSA contributions. This rule applies whether the individual is the participant in the HRA or is covered under a spouse’s HRA. An individual can remain HSA-eligible if his or her spouse’s HRA excludes the individual from coverage, but most HRAs allow benefits for any eligible tax dependent enrolled in the primary medical coverage with which the HRA is integrated. For a family member to remain HSA-eligible, the HRA plan documents and procedures would likely have to be redesigned to facilitate an “employee-only” or “employee-plus-children (but not spouse)” coverage option.
It is important to distinguish between having an HSA and making or receiving HSA contributions. An individual with an HSA account can enroll in, or become covered under, an HRA, but once this happens, the individual may no longer make or receive HSA contributions. Any amounts already in the HSA can still be used for qualified medical expenses after the individual becomes HSA-ineligible so long as the HRA and HSA do not reimburse the same expense. There are no ordering rules mandating which account must reimburse first, so the individual can seek reimbursement from the HRA or the HSA.
In this situation:
- The employee’s spouse can enroll in her new employer’s CDHP and HRA, and if she does so, she cannot make or receive HSA contributions.
- If the employee is covered under his spouse’s HRA, he cannot make or receive HSA contributions.
- The 2022 limit for HSA contributions will be prorated for the months prior to HRA coverage, and the employee and his spouse have until their deadline for filing their 2022 federal income tax return(s) to contribute up to the prorated limit.
- Existing HSA account balances may still be used to reimburse qualified medical expenses.