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HSA question - Can this be done?


Guest fhatchett

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Guest fhatchett

Employer has H.S.A. and FSA. An employee has a qualifying high deductible health plan covering his children and himself, but not his spouse. She is on COBRA from her prior employer and the plan is not an H.S.A. qualified plan. He elects to also have the FSA for dental and vision for him and the children. But he also needs the FSA to provide for his spouses medical copays, ded, coinsurance, etc.

Can this be done?

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Just so that I am sure that I understand your question. What does the employer having both an HSA and an FSA have to do with the employee having an FSA only and covering the eligible expenses of all his family members including his spouse?

The employee does not have an HSA. Is that correct?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest fhatchett

G Burns,

Yes that is correct.....

The employee does not presently have an HSA....

Is the employee eligible for an HSA account?

Thanks,

fhatchett

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I guess that I am not understanding. Why would the employee want an HSA? What would the HSA do that the FSA is not able to do?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I assume that the employer has structured its FSA program to limit the scope of eligible expenses so that its employees remain HSA eligible. If that is the case, the FSA would not be able to reimburse general medical expenses under its terms.

If the FSA is so limited, the employee could NOT use the FSA to reimburse the "spouses medical copays, ded, coinsurance, etc". If the FSA is not limited, the employee would not be eligible to establish or contribute to a HSA.

Assuming that spouse's COBRA coverage is limited to individual (and not family) and is the plan only (not FSA), then her coverage would not impact the employee's ability to establish and contribute to a HSA. HSA elibility is determined on an individual basis (although the contribution limit could be allocated between two eligible spouses).

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Jduns,

Are you then also saying that:

If the FSA is not limited, and the employee does not participate in an HSA, then the employee could use the FSA funds to reimburse "the spouses medical copays, ded, coinsurance, etc"?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns,

There are are some things that a health FSA is not permitted to reimburse by law (cobra premiums, non deductible medical expenses, etc).

Within those limits, an employer may (but is not required to) further limit the types of medical expenses that the health FSA will reimburse.

Unless the employer has chosen to restrict the HCFSA, the balance could generally be used to reimburse medical expenses for the employee and the employee's tax qualified dependents (spouse and children) that have not otherwise been reimbursed.

Thus, assuming that the employee could substantiate the claims (e.g. submit an EOB indicating the amount owed by the spouse and demonstrate that the spouse is the recognized as the employee's spouse under federal law), if the HCFSA is not limited, the health FSA could generally reimburse these expenses.

This is the basis for the IRS saying that a spouse's participation in an unlimited FSA makes the employee not eligible to contribute to a HSA (because the employee legally could have pre-deductible medical claims reimbursed under the FSA).

In response to your question about what a HSA can do that a FSA can't -- roll over from year to year and grow with interest (rewarding under-utilization rather than the FSA rush to spend excess dollars rather than forfeit them), fully vested at all times so you can take it with you without cobra hassles, usable for anything (although with potential tax implications if not used for tax deductible medical expenses), this is just a short list that could go on.

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JDuns

The questions were asked in the context of the Original Post. Rollover of unused funds was not a consideration. Limiting the FSA was not mentioned either.

It is a matter of "Employer has H.S.A. and FSA". The employee has a HDHP but no HSA. Same employee has an FSA (no limitations given) BUT the OP stated "But he also needs the FSA ".

It was not stated whether or not the employee wants an HSA or also has an HSA. Since the OP said that "but..." it suggest to me that there is some issue that creates an "either or" or a "both" consideration.

The OP asked "Can this be done? " and I am still not clear as to what "this" is.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns,

Sorry if I read too much into the OP.

I assumed from "Employer has H.S.A. and FSA" that the employer structured the FSA so that it would be compatible with the HSA structure (ie limited the FSA reimbursable expenses). This assumption was consistent with "He elects to also have the FSA for dental and vision for him and the children." since most limited scope FSAs will cover dental and vision.

I had assumed that fhatchett had been asking if the FSA could reimburse his spouse's medical expenses and if the employee could establish a HSA.

The answers to these questions go back to his employer's actual plan design which we do not have enough information to address.

The best I can do is say that if the FSA is unrestricted, electing to participate in the FSA would make the employee ineligible to participate in the HSA. Because HSAs are more flexible for the reasons previously mentioned, given the choice between the two, I would recommend the HSA. Note that the HSA could reimburse the spouse's medical expenses without tax implications even though the spouse was not covered by the HDHP.

If the FSA is restricted, the FSA dollars cannot be used to reimburse the spouse's medical expenses.

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