We’ve all heard that old saying “No good deed goes unpunished” and, as our society becomes more litigious it probably becomes truer than ever. There is one area in employee benefit plans that employers may not be aware of that comes under this heading. Employer contributions to an HSA plan.
So, ask yourself this question. Is your company’s HSA plan subject to ERISA or not?
Well, it all depends. Isn’t that about the most frustrating answer you get when you have a question. Can’t somebody just say yes, it is, or no it isn’t?
While I tend to agree with you, the problem you face in this case is one of definition and implementation.
The short answer to the question is it depends on whether or not the employer contributes to the health savings account or not.
If the employer contributes to the HSA account, then the HSA plan becomes subject to ERISA as an employer provided employee benefit plan. Note this is a contribution to the savings account, not payment of the “insurance” premium.
If the employer does not contribute to the savings account, then the HSA portion is probably not subject to ERISA. It still makes sense for the employer to contribute because the rest of the plan is already subject to ERISA and must be discussed in the SPD.
But let’s look a little deeper at this, for the info junkies among us.
First let’s talk about the two parts that are required to have a qualified health savings account.
The HDHP
First, you have to have a high deductible health plan (HDHP), and because that is clearly an employer-sponsored employee benefit health plan it is subject to ERISA. What you need to understand at this point is that you can have an HDHP and not utilize a tax qualified savings account (HSA) with it. The employer might implement an HDHP and then allow participants to buy hospital reimbursement plans, use an HRA, or similar approaches, on a voluntary basis. That is why this part is called a High Deductible Health Plan.
The HSA
The next consideration is the HSA plan, which is in fact separate from, but connected to, the high deductible health plan. However, keep in mind, you have to have both of them to have a tax qualified plan. You must have an HDHP to implement an HSA.
HSA stands for Health Savings Account, and it is an IRS approved tax qualified health savings account that allows employees to save money to offset the effect of that high deductible in the high deductible health plan. These accounts operate under the same rules as IRA retirement accounts with at least one big exception. In an HSA the participant may make deductions from the savings account to pay for qualified medical expenses without incurring a penalty for early distributions from the IRA.
In other respects, it is just an IRA that the employee owns, may contribute to and may invest the funds at their discretion.
The real shame here!
After many years these plans are still not well understood by employers, employees and the insurance agents and brokers who recommend them.
We get questions.
“Bill, can you tell our employees how to plan for retirement?” Yes, I can but most of them will not listen because I can tell them how to become financially secure in retirement, but they still have to do the work – I can’t do that part for anybody – and frankly most people are not ready to do that work.
Note – You know I have to say this somewhere. I am not providing legal or financial advice in this article, nor am I dispensing insurance related advice or guidance on plan selection or coverages. Before you go making decisions that may dramatically affect your physical and financial future, I encourage you to seek qualified advice familiar with your personal situation.
Who owns the HSA.
Okay, here’s that simple answer for you. The participant in the high deductible health plan owns the health savings account. No matter who puts money into that account, the person who is insured owns the account and is the only one who may use it to cover qualified medical expenses, or invest with it. The money in the account goes with them.
What can I use the HSA money to pay for?
There is a list of approved expenses on the IRS website pertaining to HSA Accounts. Ok now, I know this is not strictly true, but a good rule of thumb here is, if the expense would not be covered by your insurance plan it probably may not be an approved HSA expense. So, no you cannot buy beer at Walgreens with it, or pay your vet bill, but you can get cosmetic surgery, or pay for those braces for your teeth.
What happens if I use the HSA money for a legitimate claim that is not covered by my medical policy?
Great question, you get the gold star today. As an example, let’s say you use the HSA money for cosmetic surgery that is not covered by your medical plan. The expense will be approved as an HSA expense, but it will not be credited toward your plan deductible or maximum out of pocket (stop Loss) limit. This has come as a big surprise to more than one person who spent a lot of money on dental work and then went in the hospital and was faced with the entire medical plan deductible.
May I invest the HSA money as I do in my IRA?
Yes, but you should always keep enough money in the basic HSA account to cover your medical plan deductible in case you need it. You also need to check with the HSA administrator to see what restrictions might apply to investing the money.
Do I have to use the HSA administrator my employer set up?
No, you don’t, but if you are not a disciplined person who understands this account, you will be better off if you use a plan administrator who knows what they are doing. You may set up your HSA in your own bank if you prefer but you will lose the claims administration and the claims credit card offered by the administrator. This is a bigger deal than I am addressing here but I caution you to get qualified advice before you take this route.
I like the HSA and high deductible health plan approach, and it is an avenue you need to look at and understand.