Category Archives: Reader Question

How Family Plans with Individual Deductibles Affect HSA’s

This question was submitted by an HSA Edge reader Mordechai. Feel free to send in your question today to evan@hsaedge.com.

My family insurance plan (parents and children), besides having a total deductible and out of pocket max for the entire plan, has a separate deductible and OOP max for each individual on the plan. Do these numbers effect my eligibility for an HSA?

Family vs. Individual Deductibles

A deductible is an amount you pay out of pocket before insurance begins paying. Most family coverage HSA plans feature an aggregate (“non-embedded”) deductible with one deductible amount for the entire family. Each individual’s medical spending counts toward that deductible, and once met, insurance coverage begins. The only thing that matters is whether the deductible is met, not who spent what towards it. This means that one person can incur enough cost to trigger the deductible, or it can be a shared effort. Either way, it is irrelevant since there is one deductible and it is shared.

Some HSA eligible HDHP insurance plans include individual deductibles in addition to the family deductibles. These plans are quoted as “deductible of $4,000, individual deductible of $2,800”. Each individual’s expenses count towards their individual deductible as well as the family deductible. Once they have met their individual deductible for the year, insurance begins paying expenses for that individual. Once the family deductible is met for the year, insurance begins paying for the entire family.

The benefit of an individual deductible is they are lower than family deductibles, so you can receive full cost coverage sooner. The downside is that coverage only applies to one person until the family deductible is met. In addition, it is another deductible to manage for each person insured.

How Individual Deductibles Work with Health Savings Accounts

When evaluating HDHP plans for HSA eligibility, it is important to keep in mind how individual deductibles come into play. The IRS states that for a plan to be HSA eligible, both the family and individual deductible must be above the minimum annual deductible for HDHPs. If not, the plan is not considered a HDHP and is not HSA eligible. Per IRS form 969:

HSA-rules-individual-deductible

Said another way, if any of the individual deductibles are lower than the HDHP minimum deductible ($2,700 in 2018) the entire plan is not HSA eligible. This is true even if the plan’s “total” or family deductible is above the HDHP minimum. I don’t really like this rule as it is a grey area and confusing to users. That said, I understand its use since parts of the plan have a lower deductible than that required for HSA’s. The problem I have is this may not be apparent when choosing coverage, leading to a situation where someone plans and saves in their HSA, only to find they are not allowed to contribute.

Note: to fulfill the IRS requirement of tracking HSA receipts, please consider my service TrackHSA.com for your Health Savings Account record keeping. You can store purchases, upload receipts, and record reimbursements securely online.

Can I Use My HSA to Pay for Spouse’s COBRA Premiums?

This question was submitted by an HSA Edge reader. Feel free to send in your question today to evan@hsaedge.com.

I will be going on Medicare soon however my spouse will not be eligible until 7 months later. She will continue on COBRA coverage on my old plan. Can I use my HSA account to pay premiums entirely for her COBRA plan? Several sites I have searched on state only the amount over 10% of income like a medical deduction.

Being on Medicare does not affect how money in your HSA can be spent. One of the great things about HSA’s is that your contributions remain yours forever, so you can keep them and spend them how you like. This is true whether you change insurance, employers, or even retire and go on Medicare. The real question here is whether you can treat your spouse’s COBRA continuation coverage as a qualified expense and pay it from your HSA.

We know that HSA contributions can be a great safety net, as they can be used to pay for insurance premiums when you are receiving unemployment benefits or are on COBRA coverage. We also know that all of the benefits of your HSA extend to your spouse and dependent’s qualified medical expenses. Luckily, these two uses combine such that you are allowed to pay for COBRA coverage for your wife or dependents.

More explicitly, IRS Form 969 calls out the COBRA coverage for spouses in the “Insurance Premiums” section:

HSA-pay-COBRA-coverage-for-spouse

Thus, I see no problem with using HSA funds to pay for your spouse’s or dependent’s COBRA continuation coverage. This is another great benefit of HSA’s in that they can be used to provide for your family when they are in need or need care. As an aside, that 10% rule you mention generally applies to deducting large scale medical expenses compared to your income, which is separate (and not as useful) as an HSA.

Note: to help track your spending on eligible COBRA insurance premiums, please consider my service TrackHSA.com for your Health Savings Account record keeping. You can store purchases, upload receipts, and record reimbursements securely online.

Last Month Rule Coverage Gap During Testing Period

This question was submitted by HSA Edge reader Paul. Feel free to send in your question today to evan@hsaedge.com.

What is the impact if I use the Last Month Rule and during the subsequent 12-month period I have a 1-month gap. Let’s say that I start my HSA on November 1st, then have Medicare in January, then have an HSA for the balance of the year. Do I have 10 months of excess contributions or one 1 because of January?

A condition of using the Last Month Rule is to abide by the Testing Period, which requires that you maintain HSA eligible coverage for the subsequent year. The Testing Period evaluates your status on the first day of each month; if you have HSA eligible coverage then you are considered covered by the HSA for that month.

If you had non HSA eligible coverage on the 1st of January you would fail the Testing Period. The result of this is any additional contribution from the prior year (above and beyond the 2 months you had coverage) is added back to income and taxed. Unfortunately, this occurs for the full (over) contribution amount, even if it was just 1 month missed in the Testing Period.

The penalty calculation is a bit tricky and if you need help, I recommend my site EasyForm8889.

Note: if you need help accounting for your HSA penalties from the Last Month Rule, please consider using my service EasyForm8889.com to complete Form 8889. It asks simple questions in a straightforward way and will generate your HSA tax forms in 10 minutes. It is fast and painless, no matter how complicated your HSA situation.