Know the Eligibility Rules When Setting Up HSAs
By Jodie Norquist, CIP, CHSP
As benefits enrollment season fast approaches, your business clients may be considering a switch to offering their employees a high deductible health plan (HDHP) with a health savings account (HSA) option to lower healthcare costs. This could mean an increase for your financial organization in new clients looking to set up HSAs.
Now may be a perfect time for you and your staff members to brush up on your HSA knowledge. It’s particularly important to understand your financial organization’s responsibilities when a client opens an HSA and how to determine if an individual is eligible to open an HSA.
HDHP Is Key to HSA Eligibility
Your financial organization may require that potential HSA owners provide proof that they are eligible to contribute to an HSA. This is not an IRS requirement, but obtaining proof of eligibility can be helpful for all involved to reduce the chances you’ll have to remove excess contributions and close the HSA later if the client is ineligible.
Individuals are eligible to open an HSA if they
are covered under an HDHP,
are not covered by any health plan that is not an HDHP (certain preventive services or medications may be covered by insurance without first satisfying an HDHP’s general deductible),
are not enrolled in Medicare, and
are not eligible to be claimed as a dependent on another person’s tax return.
You may ask potential HSA owners to complete a contribution eligibility form or provide documentation that shows they are covered under an HSA-compatible HDHP. An HDHP is considered HSA-compatible if it meets both an annual deductible and out-of-pocket expense requirement. Each year the IRS sets the dollar amounts for the minimum annual deductible and maximum out-of-pocket expenses. These amounts, typically released for the upcoming year by the IRS in May, include cost-of-living adjustments.
The minimum annual deductible for 2021 and for 2022 is $1,400 for self-only coverage, $2,800 for family. The maximum out-of-pocket expenses for self-only coverage are $7,000 for 2021 and $7,050 for 2022. For family coverage, these amounts are $14,000 for 2021 and $14,100 for 2022.
If your clients are unsure of the type of health care coverage they have, they should check with their health insurance provider to find out if their plan is an HSA-compatible HDHP.
Once HSA Is Set Up, Don’t Overlook Your Responsibilities
While HSA owners bear the lion’s share of responsibilities for using their accounts properly, financial organizations that act as HSA administrators bear their own responsibilities. They play a critical role in establishing the account, documenting amendments, accepting contributions, making distributions, and preparing proper reporting.
When establishing a new HSA, your financial organization should do the following.
Provide the client with an HSA application, along with a current plan agreement and, if applicable, a disclosure statement. Disclosure statements aren’t required for HSAs, but many organizations do provide them as a courtesy. A “truth-in-savings” disclosure generally is also provided.
Obtain your client’s personal identification information, including address and Social Security number, along with beneficiary information.
Retain a signed copy of the HSA plan agreement or keep a written statement by the HSA owner that acknowledges he received both the plan agreement and disclosure statement, if applicable. Often this written acknowledgement can be found on the application.
Retain an authorized signer agreement for the account if your organization allows other individuals, such as a spouse or other family members, to authorize HSA transactions.
Once you’ve established an HSA for a new client, the IRS requires that your organization track contributions for the year, reporting them on IRS Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information. Your organization is also obligated to limit contributions to the maximum family contribution amount for the year, regardless of whether the HSA owner has self-only or family HDHP coverage.
