HSA eligibility can be tricky to navigate. We often know what makes you eligible, but to combat the surprise of losing eligibility, we've outlined the top five reasons why people lose their eligibility to contribute to their HSA.
Whether losing HSA eligibility is a conscious decision or not, it's important to know what that means so you can prepare for what's next. If you already have an HSA, you know the ins and outs of the eligibility are a bit trickier than your average savings account. If you're thinking about choosing an HSA-eligible health plan, you should know the guidelines so you don't get caught making a decision that in turn makes you ineligible.
This is one of the most common disqualifications. Generally speaking, your employer will not recommend plans that include HSAs alongside a general purpose FSA or HRA because you're not allowed to have both. However, if your spouse/domestic partner chooses a plan with a general purpose FSA/HRA with funds that can cover their family members, then your HSA eligibility is tossed out. So be sure to chat with your partner about what plans they're choosing to make sure this doesn't happen to you!
Let's say you're switching jobs in the middle of the year, which means new health insurance. Your new employer offers a low-deductible, copay-based health plan that has a surprisingly low monthly premium compared to your last employer. We get it; it would be hard to pass that up. If you choose this plan, you are no longer considered HSA-eligible and will have to determine the prorated contribution limit based on the time the new coverage hits. But don't worry, your HSA funds aren't going anywhere; you just can't actively contribute until you become eligible again.
The IHS and VA treat individuals affiliated with tribe membership and military service, respectively. Depending on what kind of services you may receive from either of these facilities, it could affect your HSA status for three months following the treatment. Now, there are a few nuances here. HSA eligibility is not affected if you seek select preventative treatment or treatment for an injury or ailment that is service-related. If the services you received at the IHS or VA do not fall under these buckets, then you are no longer HSA eligible for the following three months. For example, you receive treatment on April 7, so you are not HSA eligible for May, June, or July and will be subject to prorated contributions.
If you're enrolled in any type of Medicare or Medicaid, you lose your eligibility to contribute to an HSA. And because these public programs generally don't meet the criteria of an HSA-qualified plan, you lose eligibility even if you're still enrolled in an HDHP at the same time. However, the funds in your HSA can still be used on qualified medical expenses, and if you're over 65, you can use the HSA dollars you've saved over the years on anything, like a traditional retirement account. Additionally, it's important to pay attention to the dates in this case. Suppose you retire within six months of turning 65. In that case, Medicare retroactively goes into effect on the first day of your birth month, and any HSA contributions made after that date are considered over-contributions that must be fixed.
We may see more of this in the future as corporate giants like Amazon introduce onsite clinics for employees. However, this could get tricky for those who have HSA-eligible health plans. A handful of services are okay to receive in an onsite clinic, such as physicals, immunizations, allergy injections, over-the-counter pain meds, etc. Participating in any of these will not affect your HSA. When the services and treatments go beyond these standard offerings and are marketed as "significant benefits" at low costs (under market value), then you and your HSA could be at risk. Significant benefits could be categorized as low- to no-cost treatments, no copays, or no deductibles. So be cautious in this case if you want to protect your HSA eligibility!
All in all, the best filter to use to determine if something affects your HSA-eligibility is to ask yourself if the product, service, or treatment is in line with how an HDHP works. Is the service covering money upfront when you haven't met a deductible? Are the benefits affecting your deductible amount? Is everything suddenly covered with this new benefit? As long as you keep that in mind, you should be safe from surprise loss of eligibility. But if this is a decision you're making, now you have what you need to know!