Health Savings Accounts (HSAs) were created in 2003 according to the U.S. Department of the Treasury. Since that time, there haven’t been significant changes to them, especially significant legislative changes. Legislation is now pending in Congress to give HSAs a “refresh” that would bring HSAs more in line with today’s consumer needs.
On June 5, NAHU joined with more than 20 other organizations in a letter to Congressional leaders to make the case for the legislative “refresh.” The letter calls for “doable” reforms including:
- Greater flexibility to offer first-dollar coverage of health services at an onsite employee clinic and retail health clinic
- Clarifying that “excepted benefits,” which are non-major medical benefits like telehealth and second opinion services, do not jeopardize a beneficiary’s eligibility to contribute to an HSA;
- Correcting the definition of “dependents” to include adult children, domestic partners, and non-traditional dependents
- Greater flexibility to offer first-dollar coverage of services and medications for chronic disease prevention
- Streamlining conversion from a Medical Savings Account (MSA), Flexible Spending Arrangement (FSA), or Health Reimbursement Arrangement (HRA) to an HSA
- Permitting the use of HSA dollars toward wellness benefits, including exercise and other expenses associated with the sole purpose of participating in physical activity
- Clarifying that direct primary care arrangements are not insurance and may be offered alongside an HSA
- Permitting an employee to contribute to an HSA even if his or her spouse has a health Flexible Spending Account.
HSAs represent one of the more frequent topics of inquiry received through NAHU’s Compliance Corner. A recent question to Compliance Corner illustrates the complexity of HSAs since the rules for HSAs don’t always reflect current benefit practices or current benefit law.
The questioner noted that the Affordable Care Act (ACA) requires that plans that offer coverage for dependent children must make coverage available to age 26. But, the tax law governing HSAs only allows a “tax dependent” to qualify for medical expenses to be reimbursed from a parent’s HSA. A “tax dependent” is a dependent who is not yet 19 or, if a student not yet 24 at the end of the tax year. There is also a provision that addresses dependents who are permanently and totally disabled.
As a result, a situation can arise where a person is a dependent for benefit purposes but not for HSA purposes. Fortunately, as long as the dependent is covered by the family qualified high deductible health plan (HDHP) the adult child can establish their own HSA.
A good introduction to HSA rules can be found in the IRS HSA course for volunteers who assist taxpayers. It can be found here.
The Treasury Department has a resource center for HSAs. It can be found here.
IRS Publication 969 is a resource that addresses HSAs and tax questions in detail.