HDHP: Required Choice?

[Guest visitor]

Your thoughts would be appreciated:

Employer, which is a C Corp, desires to offer an HDHP (and fund HSAs) for shareholder-employees only while providing a low deductible indemnity plan for all other full-time employees who are non-HCEs. In addition, the employer will provide an HRA to all full-time employees (shareholder-employees and all others who have employer health care coverage). The HRA will have a maximum dollar reimbursement amount for all participants but will be a limited purpose and post-deductible HRA for shareholder-employees but will provide for full reimbursement under Section 213(d) for all other employees.

Under the HSA rules (e.g. Notice 2004-50, Q&A 1 and Reg. 54.4980G-3 (Q&A 9, Example (2)), is the employer required to offer the HDHP and HSA to all full-time employees or can it consider only those who have been offered the HDHP as eligible employees for purposes of the comparability rules?

Is there any risk of violating the discrimination requirements under Section 105(h)?

[Jacmo]

There are three separate categories of noncollectively bargained comparable participating employees for comparability testing: a) current full time employees; b) current part-time employees; c) former employees. These are the exclusive categories for comparability testing. No other categories are permitted. [ Treas. Reg. 54.4980G-3, Q/A-5©].

Thus it would seem that creating a category of HCE vs non HCE will not be allowed for purposes of HSA contributions. Which makes the rest of the question a moot point.

[Guest Sieve]

Since health care insurance coverage can be discriminatory, an HDHP can be provided only to HCEs or only to any other group of employees. In that case, funding an HSA for only those people is ok. Look at Treas. Reg. Section 54.4980G-3, Q&A-7(a).

[Jacmo]

Good point! And if we assume that the HDHP is an insurance contract, then there should be no 105(h) problems.

[Guest Sieve]

Correct. But visitor probably hasn't visited this site in weeks, so our wonderful insight will lay fallow until the question arises again in some surfer's mind!!