Proposed HSA Regs Cover Two More Outstanding Issues

(Published July 12, 2007)

Regulations governing employers' contributions into employees' health savings accounts (HSAs) were issued last year. Those regs left two questions for later — how can employers make comparable contributions into employees' HSAs if employees haven't established their HSAs by the end of a calendar year, and whether employers can accelerate their contributions if employees incur medical expenses that exceed the amount of employer contributions currently available to them. New proposed regs answer these two questions. You may rely on these regs until final regs are issued.

Employer HSA Contributions Recap 

Under the 2006 regs, before employers contribute into employees' HSAs, they must group similar employees and their high-deductible health plan coverage together. There are only three acceptable groups: full-time employees, part-time employees (i.e., those working fewer than 30 hours a week), and former employees. There are two categories of coverage for high-deductible health plans — self-only and family coverage. Family coverage may be broken down into self plus one, self plus two, and self plus three or more.

The comparability rules contained in the 2006 regs apply separately to each group. Therefore, employers can contribute more, less, the same, or nothing into HSAs of employees in different groups, provided contributions for all employees within a group are the same cash amount or percentage of the high-deductible health plan's deductible. The 2006 regs say the following aren't comparable:

• employer matching contributions;

• employers contributing less to employees with self plus two coverage (or self plus three) than they contribute to employees with self plus one (or self plus two);

• employers conditioning contributions on employees' participation in health assessments, disease management programs, or wellness programs; and

• employers making additional contributions into employees' HSAs when they attain a certain age or have worked for the employer for a specified number of years.

New Notice And Contribution Requirement 

Employees who don't establish HSAs by the end of a calendar year, or those who establish HSAs but don't tell their employers, make a hash of the comparability rules, since they should have been included in some group, but weren't. According to the proposed regs, employers must notify all HSA-eligible employees who haven't established HSAs of their ability to receive comparable contributions. Notice must be provided no earlier than 90 days before the first employer contribution and no later than January 15 of the next year. To be eligible for a comparable contribution, employees must respond by February 28 of the next year. To ease the burden of this new notice requirement, notice may be provided to all employees on an annual basis, and may be provided electronically.

For each employee who responds by February 28, comparable contributions, plus reasonable interest, must be made into their HSAs by April 15. Employers must take into account each month employees were eligible to participate in an HSA. Result: Contributions may have to cover months before employees actually opened their HSAs.

Accelerating Employer Contributions 

Under the proposed regs, employers may accelerate part or all of their contributions to help employees who have incurred medical expenses that exceed amounts that are currently available to them. Same catch: If contributions are accelerated for one employee, accelerated contributions must be available on an equal and uniform basis to all eligible employees throughout the year. In addition, you must establish a reasonable, uniform method and standards for accelerating contributions and determining medical expenses.

A model notice, as well as numerous examples of the notice requirement, are provided in the proposed regs. Point your browser to: http://edocket.access.gpo.gov/2007/pdf/E7-10529.pdf

Related Topic(s): Benefits - Flexible Benefits