Another Question: Post-Deductible Health FSA

[Guest Carolyn Barnard]

Am I interpreting Revenue Ruling 2004-45 correctly?

"A post-deductible health FSA does not pay or reimburse any medical expense incurred before the minimum annual deductible under Section 223©(2)(A)(i) is satisfied....The deductible for the HRA or health FSA ("other coverage") need not be the same as the deductible for the HDHP, but in no event may the HDHP or other coverage provide benefits before the minimum annual deductible under Section 223©(2)(A)(i) is satisfied. Where the HDHP and the other coverage do not have identical deductibles, contributions to the HSA are limited to the lower of the deductibles. In addition, although the deductibles of the HDHP and the other coverage may be satisfied independently by separate expenses, no benefits may be paid before the minimum annual deductible under Section 223©(2)(A)(i) has been satisfied."

Client's HDHP deductibles are $2600 for self-only and $5,150. Since the minimum annual deductibles under Section 223©(2)(A)(i) are $1,100 for self- only and $2,200 for family, are these lower amounts the most they would have to meet before the health FSA can start reimbursing expenses? Or am I confusing it and the client's higher HDHP deductibles must be met?

[J Simmons]

Carolyn,

I think on your scenario, the post-deductible FSA could be designed to pay otherwise qualifying medical expenses to the extent they exceed the statutory, sec 223©(2)(A)(i) deductibles ($1,100 employee only, $2,200 family) for the year, despite the fact that the employer's HDHP deductibles are $2600 for employee-only and $5,150 family.

However, if so designed, the HSA contributions will be limited by the lower sec 223©(2)(A)(i) deductibles ($1,100 employee only, $2,200 family) rather than the higher HDHP deductibles are $2600 for employee-only and $5,150 family.

[Guest Carolyn Barnard]

Thank you for this info. If the client wishes to maintain the higher HSA contribution amounts, that is permissable too, correct?

[J Simmons]

I think that the limit on HSA contributions that ties to the deductibles would be driven by the lower of the deductibles of the HDHP or or the FSA that are used in combination. So if you have a HDHP with deductibles of $2600 for employee-only and $5,150 family used in combination with an FSA with deductibles $1,100 employee only, $2,200 family, then the limit on HSA contributions due to deductibles would be keyed off of the lower FSA deductibles ($1,100 employee only, $2,200 family) not the higher HDHP deductibles ($2600 for employee-only and $5,150 family).

[Guest Carolyn Barnard]

I thank you again for the clarification. I'm not good at typing my entire thought on these message boards...I need to work on that. I'm wondering if it is OK to design the plan to have the health FSA only pay after the higher HDHP deductible has been met. The ruling says the minimum deductible amounts under the regs must be met...is it OK to design the plan so that the higher HDHP deductible must be met and thereby preserve the higher HSA contribution?

[J Simmons]

Yes

[Guest Guest99]

The FSA would include a statement to the effect of "the FSA shall be the payor of last resort", meaning after all payments have been made toward the deductible of the health plan.