Can I 'Have' a General Health FSA and an HSA? Yes. Or No.

by William Stuart | Originally posted on LinkedIn for your Health Savings Academy

Not to get too picky, but the word have is insufficient to determine whether you can own a Health Savings Account and simultaneously elect to participate in a general Health FSA.

It's not uncommon to see a headline in the popular press stating that you can't have a general Health FSA and a Health Savings Account. Unfortunately, the word have is vague in this context.

Yes, you can have a general Health FSA and a Health Savings Account.

No, you can't have a general Health FSA and a Health Savings Account.

Either statement may be correct, depending on the definition of have.

Health Savings Account Eligibility

To fund a Health Savings Account, you must satisfy three requirements. First, you must be enrolled in HSA-qualified coverage - a plan with a statutory minimum annual deductible of $1,500 (self-only) or $3,000 (family) that applies all but select preventive services to the deductible. Second, you can't have any disqualifying coverage. Third, you can't qualify as another person's tax dependent.

Disqualifying coverage - the second requirement - includes any plan that reimburses medical expenses before you satisfy a deductible at least high as an HSA-qualified plan's.

Example: Your medical plan with a $3,000 self-only deductible is integrated with a Health Reimbursement Arrangement that pays the first $1,500 of deductible expenses. You're covered by two plans - the medical plan and the HRA. The HRA provides first-dollar reimbursement - in other words, it pays claims before you incur any deductible responsibility. Therefore, you're disqualified from opening and funding a Health Savings Account.

Health FSA

A Health FSA can reimburse all expenses that diagnose, cure, mitigate, treat, or prevent an injury, illness, or condition. It's an employer-sponsored plan, and companies can narrow the list of qualified expenses (though most don't). A general Health FSA is disqualifying because it provides first-dollar reimbursement (no deductible on the Health FSA) of medical expenses.

Note: Unless an employer adopts a more restrictive plan, a Health FSA automatically covers not only the employee, but also the employee's spouse, tax dependents, and children until the end of the year of their 26th birthday. This provision holds true even if these family members aren't covered on the employee's medical plan. This expansive list of eligible family members is generally welcome, but it can be disqualifying if someone in the family wants to fund a Health Savings Account.

To 'Have' a Health Savings Account

So, can you have a Health Savings Account and a general Health FSA at the same time? The answer comes down to the definition of have. Do you define have to mean "to own" or "to fund?"

Yes, you can have (own) a Health Savings Account and be covered by a general Health FSA. But you can't contribute to the Health Savings Account for any month that you're covered by the Health FSA.

Example: You own and fund a Health Savings Account. Effective July 1, your spouse enrolls in her employer's general Health FSA. You can't contribute to your Health Savings Account for any month that you're covered by your spouse's general Health FSA. You can spend the Health FSA election or your Health Savings Account balance to reimburse your own, your spouse's and your tax dependent's qualified expenses tax-free. Note: You're usually better off spending the Health FSA funds first, since they're ultimately forfeited if not used.

No, you can't have (fund) a Health Savings Account for any month that you're covered by a general Health FSA.

Example: You own and fund a Health Savings Account. Effective July 1, your spouse participates in her employer's general Health FSA. You can't contribute to your Health Savings Account for any month that you're covered by your spouse's general Health FSA. You can spend the Health FSA election or your Health Savings Account balance to reimburse tax-free your own, your spouse's and your tax dependent's qualified expenses tax-free.

An Alternative Health FSA Design

You can fund a Health Savings Account while you're covered by a Limited-Purpose Health FSA. This design is crafted specifically to allow you to remain an HSA-eligible individual. How? Reimbursement is limited to dental and vision services. Just as enrolling in your company's dental or vision plan doesn't disqualify you from funding a Health Savings Account, neither does participating in a Health FSA that limits reimbursement to qualified dental and vision expenses.

Of course, you can reimburse qualified dental and vision expenses from your Health Savings Account as well. So, why also make an election to a Limited-Purpose Health FSA, especially when the Health FSA forfeiture rules apply to the limited-purpose design as well?

We'll answer that question in this week's HSA Wednesday Wisdom column. In fact, we'll provide four answers that may lead you to seriously consider making a Limited-Purpose Health FSA election even as you simultaneously fund a Health Savings Account.