Family Coverage Does Not Mean “Family” HSA

Alayna Drope.jpg

By Alayna Drope, CIS, CIP, CHSP

Is a joint or family HSA allowed?

No. There is no such thing as a “family” or “joint” health savings account (HSA). Like an IRA, an HSA is an individual account and must be established in the name and tax identification number (TIN; typically a Social Security number) of one individual. Although the individual may have family coverage under a high deductible health plan (HDHP), and assets in an HSA can be used to pay qualified medical expenses for the HSA owner and his family (spouse and any dependents), there can only be one account owner per HSA.

Some financial organizations allow an HSA to have multiple authorized users to accommodate payment of medical expenses for multiple individuals. But all distributions—no matter which authorized user removed money from the HSA—are reported in the HSA owner’s name and TIN.

Can an HSA owner with family HDHP coverage move assets from her HSA to her spouse’s HSA?

No. Even though both individuals are covered under the family HDHP, and both may be eligible to make contributions to their own HSAs, each HSA is in each person’s name and TIN. Therefore, the assets belong only to that HSA owner and can only be moved to another HSA owned by that same person—an HSA established in that HSA owner’s name and TIN. HSA assets may only be moved to a spouse’s HSA in the case of divorce, legal separation, or death. In the case of divorce or legal separation, a court order must specify that such transfer of ownership is to take place.

Can a family HSA be changed to a single HSA?

Again, there is no such thing as a “family” HSA. Many financial organizations include the words “family” or “single” (or “self-only”) in the titles of their HSAs to designate the type of HDHP coverage that the HSA owner has, signaling the amount that an HSA owner can contribute. Changing from a “family” HSA to a “single” HSA is merely a way for HSA trustees and custodians to denote a change in HDHP coverage.

A change in HDHP coverage affects the individual’s statutory contribution limit. The annual limit for eligible individuals with self-only coverage is $3,450 for 2018 and $3,500 for 2019. For those with family coverage, the annual limit is $6,900 for 2018 and $7,000 for 2019. Eligible individuals who will attain age 55 or older by the end of the year may make an additional HSA “catch-up” contribution of up to $1,000. Each spouse who is eligible may make this catch-up contribution to his own HSA. Even though two eligible spouses could choose to put the entire non-catch-up contribution amount in just one of their HSAs, an eligible spouse may not make his catch-up contribution to the other spouse’s HSA.

When changing from family to self-only HDHP coverage mid-year, the amount that an individual can contribute is based on a prorated calculation. This calculation factors in contribution eligibility as a function of the HDHP coverage type—family versus self-only—measured on the first day of each month. The monthly family coverage amount (the annual family limit divided by 12) is multiplied by the number of months family coverage existed on the first day of the month. The monthly self-only coverage amount (the annual self-only limit divided by 12) is multiplied by the number of months self-only coverage existed on the first day of the month. These two amounts are added together to determine the maximum contribution for the year.

Example:  Bill, age 35, had family coverage on January 1, 2019. On July 1, 2019, his coverage changed to self-only, making Bill’s 2019 maximum contribution $5,250 ($3,500 ($7,000/12 x 6) + $1,750 ($3,500/12 x 6)).

What happens to an HSA once the HSA owner is no longer eligible?

The HSA owner can still use her HSA assets for any qualified medical expenses incurred after the HSA was established, even if no longer contribution-eligible. Eligibility determines if the HSA owner can contribute, not whether she can use the assets accrued in the HSA.

We have an HSA owner who has family coverage under her husband’s HDHP. Her husband enrolled in Medicare this month. Does that mean she is no longer eligible to contribute the full amount for family HDHP coverage to her HSA?

The contribution limit for an eligible individual with family HDHP coverage is not determined any differently if other family members covered by the HDHP are not HSA-eligible. As long as one individual in the marriage is still eligible, that individual can contribute the full family contribution limit, plus any applicable catch-up.