Eligibility Requirements
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What is a Health Savings Account?

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 added section 223 to the Internal Revenue Code to permit eligible individuals to establish health savings accounts (HSAs) for taxable years beginning after December 31, 2003. An HSA allows individuals to pay for qualified health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. An HSA is similar to an Individual Retirement Account ("IRA"). Like an IRA, an HSA is established for the benefit of an individual, is owned by that individual, and is "portable." Thus, if the individual is an employee who changes employers or leaves employment, the HSA stays with the individual. However, an IRA cannot be used as an HSA nor can you combine an IRA and an HSA in a single account.

Who is eligible for an HSA?

To be eligible for an HSA, you must be covered by a high deductible health plan and you must not be covered by other health insurance. (This restriction does not apply to insurance for specified illness or disease or accident, disability, dental care, vision care, long-term care or hospitalization insurance) In addition, you cannot be enrolled in Medicare nor can you be claimed as a dependent on someone else's tax return. You are also ineligible for an HSA if, while covered under a high deductible health plan, you are also covered (whether as an individual, spouse, or dependent) under a health plan that is not a high deductible health plan.

May an individual establish more than one HSA?

An eligible individual may establish and contribute to more than one HSA. However, the rules governing HSAs, such as those setting maximum annual contribution limits, apply no matter how many HSAs are established by an eligible individual. Thus, for example, the account balances of all HSAs established by an individual are aggregated for purposes of applying the maximum annual contribution limit described below.

What is a "high deductible health plan"?

A high deductible health plan is a health insurance plan that has an annual deductible (determined yearly by the Treasury Department). The deductible must be at least: (1) $1,300 for individual (self-only) coverage or (2) $2,600 for family coverage (coverage of more than one individual). The annual out-of-pocket expenses required to be paid under the health plan cannot exceed $6,450 for individual coverage or $12,900 for family coverage. Out-of-pocket expenses include deductibles, co-payments, and other amounts the participant must pay for covered benefits, but do not include premiums. High deductible health plans can have first dollar coverage (no deductible) for preventive care and higher out-of-pocket expenses (copays & coinsurance) for non-network services. (The dollar amounts described above are subject to annual cost of living adjustments.) Note that health insurance companies designate which among their products are HSA-qualified high deductible plans.

Who can offer a high-deductible health plan?

A high-deductible health plan may be offered by a variety of entities, including insurance companies and health maintenance organizations (HMOs). Employers that self-insure their health benefits may also offer high-deductible plans.

Are HSAs allowed under a cafeteria plan?

Yes, HSA contributions can be made from cafeteria plans, provided certain rules are observed. A cafeteria plan, or flexible benefit plan, is an employee benefit plan that permits employees to choose from a variety of benefits, including health insurance on a pre-tax basis. Only "limited purpose" flexible benefit plans can co-exist with HSAs. See information in our FAQs under Healthcare FSA Limited Purpose Provision for more information.

If a high deductible plan is offered as part of a cafeteria plan, it can be used to establish your eligibility for an HSA. (A cafeteria plan or flexible benefit plan is an employee benefit plan that permits employees to choose from a variety of benefits, including health and accident insurance cash, tax advantages and retirement plan contributions.)

May HSA contributions made under a cafeteria plan be changed?

If you elect to make HSA contributions under a cafeteria plan, you may start or stop the election or increase or decrease the amount of your HSA contribution at any time, as long as the change is effective prospectively.

May an individual who uses a discount card for health care services or products contribute to an HSA?

A discount cardholder may be eligible to establish an HSA if the individual is covered by a high-deductible health plan and is required to pay health care costs, taking into account the discount, until the high deductible health plan deductible is satisfied.

May an individual covered by an Employee Assistance Program (EAP), disease management program, or wellness program establish an HSA?

An individual who is covered by such programs may still be eligible to establish an HSA if the programs do not provide significant medical care or medical treatment benefits. Certain screening and preventive care services are disregarded when determining whether a program provides significant medical care or treatment benefits.

What is the definition of a qualifying dependent?

IRS Code Section 152 has a two-prong definition of a dependent - qualifying child and qualifying relative. A qualifying child is any son, daughter, brother, sister, niece, nephew, or grandchild who:

  • Will not be age 19 during the year (or 24, if a full-time student). The exception is in the case of a disabled child who is considered as satisfying the age requirement despite their actual age.
  • Has the same principal address as the taxpayer for more than half of the year
  • Does not provide over half of his/her own support

A qualifying relative is any individual who:

  • Is not a qualifying child of any other person
  • Has income less than the exemption amount (see your tax advisor for details)
  • Receives over half of his or her support from the taxpayer
  • If a non-relative, resides with the taxpayer the entire year

While the Patient Protection and Affordable Care Act (PPACA) allows parents to add their adult children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that an employee whose 24 year old child is covered on their HSA-qualified high-deductible health plan is not eligible to use HSA funds to pay for medical bills for that 24 year old. Quite simply, if an HSA accountholder can't claim a child as a dependent on their tax return, then they can't spend HSA dollars on services provided to that child.