Health Savings Accounts (HSAs)

Posted on September 11, 2019

What is an HSA?

Tax-exempt account that can be used to pay or reimburse employees for certain medical expenses.

What are some advantages of an HSA?
  • HSAs make an employer’s benefits package more attractive by helping employees pay out-of-pocket medical expenses in a tax-advantaged way.
  • Employer contributions to employees’ HSAs are generally deductible business expenses.
  • All compliant HSA contributions are tax-exempt for the employee.

 

What expenses can HSA funds be used to pay?

Most medical, dental, vision, and prescription drug expenses, but not most group or individual insurance premiums. Please read IRS Publications 969 and 502 for more information. 

Which employees can have an HSA?

Employees must be covered under a high deductible health plan (HDHP) to contribute to or establish an HSA. For 2019, an HDHP is a plan with:



  • A deductible more than $1,350 for self-only coverage or $2,700 for family coverage ($1,400 and $2,800, respectively, in 2020); and
  • Out-of-pocket expenses less than $6,750 for self-only coverage or $13,500 for family coverage ($6,900 and $13,800, respectively, in 2020).  

In addition, employees generally must not be:



  • Enrolled in any other plan but the HDHP; 
  • Enrolled in Medicare; or
  • A dependent on someone else’s tax return.

 



Who can contribute to an employee’s HSA?

 



Anyone.



 

How much can be contributed to an HSA?

For 2019, the limit on all contributions for individuals with self-only HDHP coverage is $3,500 ($3,550 for 2020). For individuals with family HDHP coverage, the limit is $7,000 ($7,100 in 2020). These limits are $1,000 higher for individuals age 55 or older at any time during the year.

Can employees carry over HSA funds from year to year?

Yes.



 

Is an HSA portable for the employee?

Yes.



 

What HSA requirements must an employer satisfy?

If contributing to employees’ HSAs through a cafeteria plan, the employer must satisfy certain cafeteria plan nondiscrimination rules. All contributions to employees’ HSAs outside of a cafeteria plan must be made on a comparable basis to all comparable participating employees. Comparable contributions must be either:



  • The same amount; or
  • The same percentage of the annual deductible limit under the HDHP covering the employees.

Comparable participating employees:



  • Are covered by an HDHP offered by the employer;
  • Are eligible to establish an HSA;
  • Have the same category of coverage (self-only or family coverage); and
  • Have the same category of employment (generally part-time or full-time).

 



Can employers contribute to employees’ HSAs without also offering a group health plan?

 



Yes, as long as those employees are eligible to have an HSA. See “Which employees can have an HSA?” above.

Is an HSA subject to COBRA?  



   

No.

Where can I learn more about HSAs?

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