Alternative Coverage Types
Health Savings Account (HSA) eligibility can create some complicated situations for employees – especially those who are married. As discussed earlier, either you or your spouse’s participation in any non-HDHP program can make you ineligible for an HSA account.
If you are covered on your spouse’s non-HDHP insurance, you have non-HDHP coverage that excludes you from HSA eligibility. If you are not covered under your spouse’s non-HDHP, then you have no issue with your HSA eligibility.
Determining your coverage for group health benefits is normally straightforward. Most employees can select appropriate coverage options at open enrollment to avoid interfering with their spouse’s HSA eligibility. However, many employees do not have the option to select alternate coverage options for pre-tax benefits (FSA, HRA, and MRP). Generally, by default, every family member is covered, and therefore also by default, all family members are ineligible for HSA contributions.
In order to allow employees to select coverage that doesn’t interfere with HSA eligibility, employers have to amend their pre-tax plan documents to include alternative coverage types. There are four main alternative coverage types:
- Limited Purpose – this option allows only preventive care, dental and vision expenses to be reimbursed from the plan. Enrolling in a limited purpose benefit will not interfere with you or your spouse’s HSA eligibility.
- Post Deductible – this option allows for all eligible expenses to be reimbursed after the employee has incurred at least the minimum deductible set by IRS criteria. Enrolling in a post deductible benefit will not interfere with you or your spouse’s HSA eligibility. However, employees can only submit expenses incurred after they meet the deductible amount. For 2009, minimum deductibles are as follows:
- Single Coverage – $1,150
- Family Coverage – $2,300
- Single or Single Plus Children Coverage – this option allows employees to select which family members should be covered under the benefit. This allows a spouse to participate in the FSA, HRA, or MRP while excluding their spouse and/or dependents, thus maintaining the spouse’s eligibility in an HSA.
- Suspended Coverage – Suspending your enrollment will allow you and your spouse to remain HSA eligible.
There are creative legal combinations of all the alternative coverage options. However, while these combinations are legal, you may find it difficult to cost effectively administer more complicated plan designs.
If you are not sponsoring an HSA plan and you decide not to amend your pre-tax plan, you have no compliance issues. However, your employees may be locked out of participating in an HSA account offered through their spouse’s employment or personally owned insurance on the spouse. Amending your plan documents to allow for alternative coverage types may be something to consider for future open enrollments.