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Retiree HRA and HSA interaction


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If one spouse is eligible for a Retiree HRA and the other spouse for herself or both of them has access to a HDHP with a HSA, if one or both of them uses the HDHP/HSA, must participation in the Retiree HRA be suspended for one of both until such time as neither is participating in the HDHP/HSA or in any HDHP plan year only until such time as the deductible and all required first dollar payments for the HDHP are made through the HSA or other resources?  

Retiree HRA document is being drafted and the drafters are not clear on what is required so your thoughts are eagerly solicited. Thank you!

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@Ponderer33 Any individual covered by an HRA that is not specially designed to preserve HSA eligibility will have disqualifying coverage for HSA eligibility purposes.  That means the individual will not be able to make or receive HSA contributions.  The individual can still be covered by the HDHP.

The same is true for a retiree HRA.  If the HRA is not post-deductible, limited purpose, or suspended, the retiree and any covered dependents (i.e., any dependents whose health expenses are eligible for reimbursement through the HRA) will not be HSA-eligible.

This is essentially the same issue as posed by an employee's health FSA enrollment.  Overview here: https://www.theabdteam.com/blog/hsa-interaction-health-fsa-2/

In your situation, ideally there would be a plan feature in place permitting the retiree to elect to opt-out of/suspend coverage for any otherwise covered dependents if they want those dependents to maintain HSA eligibility.  Otherwise, the retiree would have to opt-out of/suspend the HRA entirely to preserve HSA eligibility for covered dependents.

Keep in mind that enrollment in any part of Medicare will also block HSA eligibility.  Overview here: https://www.theabdteam.com/blog/how-medicare-affects-hsa-eligibility/

Here are a couple useful pieces of IRS guidance:

IRS Rev. Rul. 2004-45:

https://benefitslink.com/src/irs/revrul2004-45.pdf

Under section 223, an eligible individual cannot be covered by a health plan that is not an HDHP unless that health plan provides permitted insurance, permitted coverage or preventive care. A health FSA and an HRA are health plans and constitute other coverage under section 223(c)(1)(A)(ii). Consequently, an individual who is covered by an HDHP and a health FSA or HRA that pays or reimburses section 213(d) medical expenses is generally not an eligible individual for the purpose of making contributions to an HSA.

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Retirement HRA. A retirement HRA that pays or reimburses only those medical expenses incurred after retirement (and no expenses incurred before retirement). In this case, the individual is an eligible individual for the purpose of making contributions to the HSA before retirement but loses eligibility for coverage periods when the retirement HRA may pay or reimburse section 213(d) medical expenses. Thus, after retirement, the individual is no longer an eligible individual for the purpose of the HSA.

IRS Notice 2008-59:

https://www.irs.gov/irb/2008-29_IRB#NOT-2008-59

Q-8. Is an individual with family HDHP coverage who is also covered by a post-deductible HRA or post-deductible health FSA an eligible individual under § 223(c)(1) if the post-deductible HRA or post-deductible health FSA reimburses § 213(d) medical expenses of a spouse or dependent incurred before the minimum family HDHP deductible under § 223(c)(2)(A)(i)(II) has been satisfied?

A-8. No. If an individual with family HDHP coverage is covered by a post-deductible HRA or post-deductible health FSA that reimburses the § 213(d) medical expenses of any covered individual before the minimum family HDHP deductible under § 223(c)(2)(A)(i)(II) has been satisfied, that individual is not an eligible individual under § 223(c)(1).

Example 1. Employee C has family HDHP coverage. Employee C’s spouse and children (but not Employee C) are also covered by non-HDHP family coverage provided by the spouse’s employer. Employee C and Employee C’s spouse and children are also covered by a post-deductible health FSA. The health FSA pays for unreimbursed medical expenses of the spouse and child without regard to the satisfaction of the deductible of the family HDHP.

Because the health FSA covering Employee C reimburses medical expenses before the minimum family HDHP deductible is satisfied, Employee C is not an eligible individual.

Example 2. Same facts as Example 1, except the health FSA does not cover Employee C. Employee C is an eligible individual.

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