Nationwide, many employers are choosing to offer HSAs and HSA-qualified high-deductible health plans. However, employers and employees often have several questions regarding adding an HSA into the mix.
Read on to learn the top things you need to know before introducing a successful HSA offering.
Q1. What’s the best way to communicate an HSA offering?
Communicate early and communicate often. It is important to leverage tools from your administrator to help explain the value of the HSA, communicate eligibility rules, and learn how claims will be handled. Visit Ameriflex’s Help Center for more information about HSAs.
Q2. How are new hires handled for HSA enrollment? Is the account prorated?
In order for an employee to make a full year’s contribution to the HSA, he or she must be HSA-eligible by December 1. If that is the case, the employee is considered eligible for the entire year in terms of contributions. However, there is a “testing” period during which they must remain eligible through the end of the next calendar year.
- The individual must still be HSA-eligible as of December 1 of that same year (or the first day of the last month of the tax year). For example, if the individual begins contributing to an HSA on July 1, 2019 but then switches to a low-deductible health plan in November 2019 (and is therefore no longer eligible to participate in the HSA on December 1, 2019), then that individual cannot contribute the full amount for that year.
- The individual must remain HSA-eligible for the 13 months following December 1st of that year (2019 for our example), otherwise they will face a 10% penalty. This means that the individual must remain HSA-eligible until at least 12/31/2020 to avoid the penalty.
This is also referred to as the “full-contribution rule” and the “no-proration rule.”
Q3: Can I contribute to HSA accounts for some employees and not others?
If HSAs are part of the pre-tax plan, they are subject to cafeteria plan rules – and must abide by discrimination testing rules. If they are on a post-tax basis (which is unusual), they are not subject to cafeteria plan rules but are subject to comparability rules. As a best practice, Ameriflex recommends contributing the same amount for all employees. Additionally, all pre-tax Ameriflex HSA plans include access to our self-service discrimination testing portal so you can rest assured knowing that you are in compliance.
Q4: Can my employees convert from a medical FSA to a Limited-Purpose FSA?
No, unless there is a true qualifying event or it is open enrollment and the FSA balance is 0. A change in an employee’s health plan is NOT a qualifying event.
Q5. What about HSAs and qualifying events?
HSAs are a month-to-month account. A participant doesn’t need a qualifying event to occur in order to start or stop contributing, as long as they aren’t enrolled in disqualifying coverage (such as an FSA).
Q6: If I offer the grace period with my existing FSA and my employees still have funds in their account, when can they participate in the HSA?
If a group’s FSA plan has a grace period, the participants will be ineligible to contribute to an HSA for the duration of the grace period. They can begin making HSA contributions on the first day of the first month following the grace period. To avoid this ineligibility, the employer may consider amending their cafeteria plan before the end of the plan year (before the grace period begins). Options include converting a General-Purpose FSA to:
- a Limited-Purpose FSA; or
- a combination Limited-Purpose and Post-Deductible Health FSA.
The amendment must apply on a mandatory basis for all FSA participants who are entitled to the grace period and must apply for the entire duration of the grace period. In other words, participants may not choose between General-Purpose and HSA-compatible FSA coverage for the grace period. For those not participating in the HSA, however, the employer could still offer a General-Purpose Health FSA for the next plan year.
Want to speak to a benefits expert? Contact us today.