Different Contributions for New Hires? Yes, but Be Sure to . . .

by William G. (Bill) Stuart | Originally posted on LinkedIn by your Health Savings Academy

Employers aren't required to give the same Health Savings Account contribution to employees who join the company mid-year as workers who were enrolled on the first day of the plan year.

Most (but not all) companies that sponsor an HSA-qualified medical plan offer eligible employees enrolled in that coverage a company contribution to their Health Savings Account. This contribution helps workers manage their out-of-pocket financial responsibility, including deductibles, coinsurance, and copays, which is generally higher than on other plans that the company sponsors.

Employers have great latitude in the amount and timing of these contributions. Typical timing includes an annual lump-sum contribution, periodic (quarterly, monthly, per-pay period) deposits, and matching contributions. These policies are outlined in the company's Cafeteria Plan (also called a Section 125 plan), the governing document that allows for pre-tax payroll deductions for medical premiums, Health FSAs, and Health Savings Accounts. The Health Savings Account section outlines the amount and timing of employer contributions.

But what's the company's policy toward new hires who become HSA-eligible mdi-year? Is the company required to give them the same contribution during the year as it does those workers who are enrolled all 12 months?

No. But the company must spell out its policy clearly in the Cafeteria Plan so that all employees understand how employer funding works. And then the company must administer the plan according to the Cafeteria plan.

Let's look at several employer contribution strategies to determine how they may be adjusted to accommodate mid-year hires (definition: a new worker hired after the first day of the plan year).

Full Lump-Sum Contribution

Companies that offer a lump-sum contribution to workers who are enrolled and HSA-eligible on the first day of the plan year can offer that same amount to HSA-eligible new hires, regardless of when they join the plan.

Example 1: Tamara's is hired effective April 15 and becomes HSA-eligible May 1 (because eligibility is determined as of the first day of the month, she wasn't eligible to make or receive contributions during April). Her company gave each HSA-eligible employee a $1,000 contribution in the first January payroll. It deposits the same amount into her account in the first May payroll.

Example 2: Tamara's new company hires Juan in early December. He's not HSA-eligible in December and thus doesn't receive a company contribution for that year.

Companies that offer the full lump-sum to HSA-eligible new hires regardless of when they're hired and become eligible during the year do so because their insurers don't prorate the deductible and out-of-pocket maximum. These employers want to provide the same financial benefit to employees who face the same potential out-of-pocket responsibility. The first company for which I worked as an HSA-eligible employee adopted this approach.