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bzorc

HSA Discrimination

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bzorc    1

Not knowing much about HSA's, I pose the following question: Can an employer discriminate against his or her employees in setting up an HSA plan? That is, can the owners set up HSA's for themselves under a company HDHP and not offer the HSA to the employees?

Thanks for any replies.

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J Simmons    4

The HDHP and contributions to HSAs have different rules that apply to them.

For sake of simplicity, let's assume the employer is a C corporation.

The HDHP, if not part of a 125 cafeteria plan or a 105 health plan, may discriminate in favor of employees that are also owners. That is, the employer can set it up and pay for the cost of coverage uner the HDHP plan for just employees that are owners. The owners must not have a choice of cash or other taxable benefit instead. If so, there is no discrimination problem under 106a. (One issue to watch here, however, is disguised dividends, and the possibility of being recharacterized as such and two-tiered taxed by the IRS. A simple illustration would be 3 owner-employees, A, B and C. A owns 40%, B 35% and C 25%. If the company is so willing to pay up to $250 per month towards C's coverage, $350 for B's, and $400 for A's, this is in exact proportionality to their stockholdings and looks more like disguised dividends than a benefit for employees. Mix it up differently, maybe extend the employer payment of the cost of coverage to some non-owner/employees too.) This payment arrangement would be an ERISA plan, so needs documentation.

As for contributions to HSAs, these are subject to discrimination rules under 223. However, instead of the employer making those contributions, beef up the pay to the employees (here the owners) you want to benefit and let them contribute it themselves to their HSAs. Then there's no discrimination rule to deal with. If the employer sponsors a 125 cafeteria plan, then that plan could offer the option to eligible employees individually to have part of their pay held out and paid over into an HSA he or she has created. This would avoid FICA on these contributions. Otherwise, contributions to an HSA that an employee makes on his or her own without a 125 cafeteria plan are income tax free, but are FICA taxed.

Things get more complicated if the employer is not a C corp.

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MARYMM    1
Not knowing much about HSA's, I pose the following question: Can an employer discriminate against his or her employees in setting up an HSA plan? That is, can the owners set up HSA's for themselves under a company HDHP and not offer the HSA to the employees?

Thanks for any replies.

I've seen one set up with such a high deductible that it was only attractive to the owners who had to pay the full cost of their medical coverage. Using the HDHP at least they had a chance of keeping some of the money that they put into the HSA However, if an employee had wanted to enroll, they could have.

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Jacmo    0

To answer your question, the HSA is not "under" the HDHP. It is a separate, private account. The employer can put in a HDHP and all employees are eligible to participate (take the coverage). Whether or not the employees also set up their own HSA is their problem (which the employer may or may not assist with). But once the employer makes contributions to an employees HSA, it must do so comparably to other similarly situated employees.

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Guest visitor   
Guest visitor
Not knowing much about HSA's, I pose the following question: Can an employer discriminate against his or her employees in setting up an HSA plan? That is, can the owners set up HSA's for themselves under a company HDHP and not offer the HSA to the employees?

Thanks for any replies.

There are comparability rules in Section 223 as noted by JSimmons but the rules only appear to apply to those employees that are eligible for the HDHP whether or not the employer makes the contribution to the HSA. It would seem that employer under the regulations (54.4980G-3, Q&A9) does not have to offer the HDHP to all employees even if they fit within one of the listed categories. The example in Q&A 9 applies to full-time employees located in different cities (City X and City Y) and the comparability rules then only apply to the employees in City X. Am I missing something here?

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Guest allancoleman   
Guest allancoleman

Jacmo is correct , bzorc , the HSA ( Health Savings Account ) is seperate from the HDHP plan my past employer offers us retirees . For example , I have a Aetna HDHP HSA qualified plan and it's entirely up to me whether I fund my own HSA or not . Originally I chose the HDHP plan offered me because it was cheaper and didn't realize that the federal HSA offered with that particular plan also offered other benefits too , especially on my tax deduction for my annual deposits to my HSA . Now we have a taxfree account for the wife and I both ( family HSA ) that is available for the wife and I to use at any time in the future for medical expenses . I thought it was a win - win situation for us to pick a less expensive HDHP plan that qiualifies for the HSA too .

Edited by allancoleman

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GBurns    17

Not usually and could depend on how far apart the cities are.

I had a client with car dealerships in multiple cities in South Florida. Some cities border each other and the distance between dealerships in different cities is less than 5 miles in most cases.

I had a client in Ohio where the dealerships were on the same road but in 3 different cities.

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