It’s open enrollment season and many employers are implementing high-deductible health plans (HDHPs) with a Health Savings Account (HSA) feature. Our prior posts about HDHPs and HSAs have explored the general eligibility requirements for HDHP/HSA arrangements and HSA contributions. Today we address common questions about the operation of an HDHP/HSA arrangement.
1. Can employees change their HSA contribution amounts at any time during a plan year or are they restricted to making a change only if a qualifying event occurs as defined by the IRS? Generally employees may make prospective changes to their HSA contribution amounts at any time and for any reason, though employers may restrict election changes to once a month and upon loss of HSA eligibility. HDHP coverage, however, is subject to the familiar election change rules.
2. Can HSA funds be used to pay for medical expenses incurred prior to the establishment of the HSA, but while an individual was covered under the HDHP? Qualified medical expenses generally must be incurred after the HSA is established in order to be reimbursable on a tax-free basis. State trust law determines when an HSA is established, and most state trust laws require that a trust actually be funded (i.e., a deposit made) in order to be established. Note, it is the employee’s responsibility to determine whether the reimbursement is subject to tax.