Mid-Year Change - HSA Member Elects PPO Coverage

[PJ2009]

Hello All,

I recently posted this question, but received no responses. Let me rephrase and hopefully somebody will weigh in. This is a new area to me, and obviously I haven’t found a definite answer in the HSA guidance.

The participant elected HSA for 2009 and made a $4,000 contribution early in 2009 to cover the entire year. However, as of April 1 he elected to enroll in the company's PPO, a low deductible plan.

1. Can he remain covered by both plans for the rest of 2009? I’m not sure what benefit this would be, except that he would be able to roll over the entire $4,000 into the next year.

2. In a related matter, can he split his coverage and cover his family under one plan and himself under the other?

3. If he cannot be covered by both arrangements, should he be required to receive a refund of 75% of the $4,000, representing the 9 months during which he was no longer covered by a high deductible plan?

Your thoughts would be most appreciated. Any cites would be as well!

Thank you.

[GBurns]

From the HSA FAQ available at :

http://www.ustreas.gov/offices/public-affa...tributing.shtml

Does my contribution depend on when I establish my HSA account or when my HDHP coverage begins?

Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. Your annual contribution depends your HDHP coverage. If you are not covered on December 1, your contribution depends on the number of months of HDHP coverage you have during the year (technically, the months where you have HDHP coverage on the first day of the month). For 2007 and forward, if you are covered on December 1, you are treated as an eligible individual for the entire year. However – if you cease to be an eligible individual during the following year, the excess over the pro rated contribution is included in income and subject to a 10 percent additional tax. The amount you can contribute is not determined by the date you establish your account. However, medical expenses incurred before the date your HSA is established cannot be reimbursed from the account.

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So I would say that the $4,000 has to be pro-rated for the few months in which he had the eligible HDHP and the excess taxed, assuming that he did have an HDHP.