With the annual benefit enrollment period closing at work, it got me thinking about whether I could contribute to a health savings account (HSA). I’ve had HSA accounts with two previous employers, but my current employer doesn’t offer it. Could I still open an HSA on my own to get additional tax savings?
The requirements to contribute to an HSA include (from Publication 969):
- Not enrolled in Medicare
- Not a dependent on someone else’s tax return
- Be covered under a high deductible health plan, or HDHP
- No other health coverage (some exceptions)
I easily pass the test for items #1 and #2.
Let’s take a look at #3, the HDHP requirement.
Is My Plan a HDHP?
For item #3, a plan is a HDHP if the plan has an annual deductible exceeding $2,800 (family coverage in 2020; $1,400 for self-only coverage in 2020).
What are my plan’s deductibles?
$6,550/individual and $13,100/family for in-network care. My in-network out-of-pocket maximum is the same, meaning that when I hit my deductible, I also hit my out-of-pocket maximum.
Yep, you read those correctly. It’s a high deductible plan.
Now for #4.
What is an HRA?
When I first started working for my current employer, I had never heard of a health reimbursement account, or HRA. I’d experienced HSAs and FSAs, but never an HRA.
Basically, my employer funds an HRA which reimburses me for medical expenses that my family incurs during the year. I get reimbursed until the account is exhausted, at which point I’m on the hook for additional expenses.
My employer funds my HRA with a maximum of $6,550 for any individual and $13,100 for the family. Notice that it matches my deductible, not a coincidence.
HRA’s are generally not portable, so when I leave my employer, no funds go with me. It’s also a use-it-or-lose-it, with the account balance resetting every benefit year.
I suspect my employer loves the HRA because it gives them another lever to control health care costs. Funding HSAs for all employees in the same way they do for the HRA would probably end up being more expensive since medical expenses aren’t distributed uniformly.
How does the HRA work?
Every time we go to the doctor, we pay out of pocket and once the claim hits our insurance, we get a reimbursement from the HRA. When we get a prescription, we pay up front and then get reimbursed a few days or weeks later.
Or at least that’s how it used to work. Starting in 2019, the account changed and now we don’t pay the doctor immediately and instead the HRA/insurance pays the doctor directly. There are still a few obtuse medical offices that can’t comprehend the arrangement and so they still charge us up front, only to send us a check weeks (or months!) later when the insurance has paid them. This change means I no longer get 2% cashback on my credit card when swiping it at the doctor.
This year, prescriptions are getting the same treatment, with a twist. We’ve been issued a debit card to pay for prescriptions and then the reimbursement will happen behind the scene. However, I think I’ll still pay with my own credit card because (a) I want the 2% cashback and (b) I don’t really want to carry another card in my wallet. I will have to go through hoops to request reimbursement (it would be automatic with the debit card) so that could be a pain. But given we spend a small fortune on prescriptions, it will probably still be worth it.
Is My HRA an “Other Employee Health Plan”
So back to requirement #4. Does my HRA count as an “other employee health plan”?
Unfortunately, yes it does. From Publication 969: “An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally can’t make contributions to an HSA.” So both the HRA and the FSA disqualify me from contributing to an HSA.
Hope my analysis was entertaining. Let me know what you think in the comments.