The post below is a guest blog from Dax Hill who serves as the Principal, Health & Welfare Consultant for CAI’s employee benefits partner Hill, Chesson & Woody.
So, you’ve just gotten through your benefits open enrollment and you signed up for your company’s health savings account (HSA). You probably decided to take part because you know about the triple tax savings advantages of HSAs:
- Your money goes in tax free
- It grows tax free and
- It comes out tax free (when used for qualified medical expenses)
Ultimately, most people who enroll in an HSA understand the basics:
- An HSA is used in conjunction with a High Deductible Health Plan (HDHP).
- An HDHP is a medical plan that has a high deductible that you must pay fully before the insurance company pays its first dollar of coverage.
- For an individual, the maximum amount you can contribute to an HSA is $3,100 for 2012.
- For more than one covered life, the maximum HSA contribution amount is $6,250 this year.
- The tax-free money you deposit into the HSA must be used to reimburse qualified medical expenses.
That’s pretty straightforward. But, as an HR professional, you may find yourself in one of the following situations where the basics simply aren’t enough.
Here are 3 “what if” scenarios that might not have been covered during your enrollment:
1)“I am covered under a High Deductible Health Plan (HDHP) with employee plus spouse coverage. My spouse is also covered under a PPO plan (not a HDHP). How much can I contribute to my 2012 HSA?”
In this scenario, the individual may contribute the $6,250 tax free. The contribution amount is based on the coverage election (employee plus spouse), even though the spouse has non- HDHP coverage.
2) “I am covered under an HDHP and my husband is covered under Medicare. Can my spouse be covered under my HDHP? And, if so, can I can use my HSA to reimburse medical expenses for my spouse?”
In this situation, the individual spouse can participate in the HDHP. In addition:
For Medicare premiums: The HSA can reimburse Medicare premiums if the account holder is 65 or older, but cannot be used to reimburse Medicare supplement policy premiums. So, the employee could use her HSA money to reimburse for her spouse’s Medicare premiums as long as the employee is age 65 or older. Otherwise, the Medicare premiums cannot be reimbursed tax-free.
Other Section 213(d) qualified expenses: The employee can reimburse her spouse’s qualified medical expenses even if the spouse has Medicare, provided that the expense has not already been reimbursed by Medicare or other insurance. So, once Medicare pays the expense, any remaining portion unpaid could be reimbursed by the HSA.
3)“Can I use my HSA account for my children if they are not covered under my HDHP Plan?”
Yes, you can reimburse the children’s qualified medical expenses provided that the children are Section 152 tax dependents and the expense has not been reimbursed by other insurance. So, once the insurance policy pays the expense, any remaining portion unpaid could be reimbursed by the HSA.
A section 152 tax dependent for a child is generally defined as a child who is under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year. In addition, the dependent could be permanently and totally disabled at any time during the year and qualify under section 152.
Confusing tax codes, contribution limits and other factors can sometimes make simple concepts more difficult to understand. What questions have you had regarding your employer’s benefits plans?