The Top 7 of 2024: FAQs on HSAs
The Top 7 of 2024: FAQs on HSAs
As a professional with oversight of your employee benefits program, you're constantly juggling multiple tasks and responsibilities. At times, answering employee questions and concerns can seem like a full-time job, leaving you with little time for other critical tasks.
If you can relate to this, you're not alone. That's why we're sharing the seven most common questions our customer service department receives from Health Savings Account (HSA) participants. We hope to empower you with the knowledge you need to proactively address these concerns with your employees, freeing up more time to focus on other important tasks.
With the end-of-year approaching, now is the perfect time to share these answers with your employees and help them make the most of their HSAs.
What are the benefits of a reimbursement account >
So, let's peel back the curtain and dive into the top seven questions.
How can HSA funds be used?
HSA funds can be used to pay for eligible medical expenses, including deductibles, copayments, prescriptions and certain medical procedures. Participants can also use HSA funds to pay for eligible medical expenses for their spouse and dependent children, even if they're not covered by their health plan.
HSA funds may also be used to pay for qualified insurance premiums and federal COBRA continuation coverage. It's important to note that using HSA funds for non-eligible expenses can result in tax penalties. If you're unsure whether a particular expense is an eligible medical expense, we recommend consulting with a tax professional.
What is an HSA and how does it work >
HSA Funds
Do the funds have to be in a participant’s HSA before they can spend it? Or does it work like an FSA?
Unlike a Healthcare Flexible Spending Account (HCFSA), participants can only spend HSA funds that are in their account at the time of purchase. As an alternative, participants can pay out of pocket for an expense and use their HSA to reimburse themselves when funds are available (as long as expenses were incurred after they opened their HSA).
Some HSA providers may offer a debit card or other payment mechanism that allows
participants to pay for eligible expenses directly from their HSA. However, if this method is used to pay for expenses that exceed the balance of their HSA, participants may be subject to overdraft fees or other penalties. It's generally a good idea for participants to keep track of their HSA balance and plan their expenses accordingly to avoid any unexpected fees or charges.
Can participants invest their HSA balance?
Yes, investing HSA funds can be a great way for participants to grow their savings and maximize the tax benefits of their account. However, it's important to note that not all HSA providers offer investment options. If your HSA provider does offer investment options, participants typically need to meet a minimum balance requirement before they can start investing. Additionally, it's important for participants to consider the risks associated with investing and make sure they’re comfortable with the level of risk they’re taking on. If participants are unsure whether investing their HSA funds is right for them, we recommend speaking with a financial advisor.
Contributions and Mid-Year Changes
HSAs can be changed at least monthly. It's important to check with your HSA provider to understand your employees’ specific options for making mid-year changes to their HSA.
Can participants contribute to an HSA after they turn 65?
Participants may continue contributing to their HSA as long as they are not enrolled in Medicare and are still covered by a qualified high-deductible health plan (HDHP) and meet all other HSA requirements. Once enrolled in Medicare, they are no longer eligible to contribute to an HSA. However, they can still use the funds already in their account tax-free to pay for eligible medical expenses.
Beneficiaries and Dependents
How does an employee change their HSA beneficiaries?
To change HSA beneficiaries, employees typically need to complete a beneficiary designation form from their HSA provider. This form will allow them to name primary and contingent beneficiaries and specify the percentage of the account that each beneficiary should receive. It's important for employees to keep beneficiary designations up to date, especially if they experience a major life change such as a marriage, divorce, birth or death. The beneficiary’s relationship to the HSA owner will determine the tax treatment to any proceeds. We recommend employees seek advice from a tax advisor when naming beneficiaries.
Can an employee name an HSA beneficiary under the age of 18?
It’s possible to name a beneficiary under 18, but it can be more complicated. In most states, minors cannot directly inherit assets, so employees would need to set up a trust or other legal arrangement to hold the funds until the minor reaches the age of majority or the court will appoint a guardian. Employees should consult with an estate planning attorney to make sure they set up the trust or other arrangement correctly and avoid any unintended tax consequences.
When is the employee no longer able to use an HSA to pay for a child’s eligible medical expenses?
The definition of eligible dependent for HSA eligible medical expense purposes is generally the same as the definition of tax dependent that applies under the Internal Revenue Code for health coverage purposes. The HSA rules were not, however, amended by health care reform to add a provision allowing expenses for children under age 27. Unlike other reimbursement accounts, HSAs cannot pay the expenses of such children tax-free unless they qualify as dependents.
HSAs can be confusing to navigate. But understanding the perks of these accounts can lead to job satisfaction in several ways. It may help employees feel valued, make informed decisions about their careers and manage their finances more effectively. Keep these common questions in mind to start the year strong and help your people feel empowered.
End of year tips for reimbursement accounts >
This blog is up to date as of November 2023 and has not been updated for changes in the law, administration or current events.
HSA Store
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