Can a Non-Compliant HRA Be Paired with an HSA Plan?

This column is an excerpt (Question 169, in the Employer section) from a book to be published later this year to help guide account owners, employers, benefits managers, and administrators understand Health Savings Account compliance issues. The format consists of a common question, an explanation in easy-to-understand English (often with an appropriate example), and citation from government documents to support the answer. The book is designed to inform. It is not a legal document, and the contents should not be construed as legal advice.

My employees and I really like our Health Reimbursement Arrangement program, which reimburses all their deductible expenses after the first $750 (self-only coverage) or $1,500 (family plan). My benefits advisor has pointed out that an HSA-qualified plan has a lower premium than our current plan, which would reduce the amount that both the company and workers would pay for coverage. Can I offer an HSA-qualified plan with an HRA rather than a Health Savings Account?

 Yes. An HSA-qualified plan is a stand-alone medical plan. You’re not required to offer a Health Savings Account program. Some companies do what your benefits advisor proposes. They purchase a lower-premium HSA-qualified plan and fund the HRA in part with the additional premium savings.

Your HRA design disqualifies your employees from opening and funding a Health Savings Account because it begins to reimburse covered expenses before the statutory minimum annual deductible of $1,600 (self-only coverage) or $3,200 (family plan). But see Question 170 for an HRA design that is not disqualifying.

If you adopt this approach, you can not give employees the option to either

(1) participate in your HRA program OR

(2) contribute to a Health Savings Account through your Cafeteria Plan.

Also, you can not contribute to employees’ Health Savings Accounts or allow them to make pre-tax payroll deductions through your Cafeteria Plan.

Giving any individual employee a choice between an HRA and a Health Savings Account violates Cafeteria Plan rules.

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The content of this column is informational only. It is not intended, nor should the reader construe the content, as legal advice. Please consult your personal legal, tax, or financial counsel for information about how this information applies to you or your entity.

HSA Question of the Week is published every week, alternating every other Wednesday with HSA Wednesday Wisdom and every other Monday with HSA Monday Mythbuster.