Can one combine primary individual HDHP/HSA plan with a secondary family (husband's) non-HDHP/FSA plan? heard IRS makes you not eligible for HDHP/HSA with non-HDHP/FSA?

[Alex_Alex]

Me and my wife are residents of Washington state. I have a regular family PPO plan that is not HDHP covering me and the kids and i have FSA to cover the medical expenses. My wife has her own individual HDHP plan through her employer with an HSA account covering only herself. Planning for 2018, i was thinking of adding my wife to my family plan as a secondary insurance since i already have a family plan and premium will stay the same to add her plus my plan have lower deductibles. I have reviewed some sites that mentions IRS does not allow people to have primary HDHP plans with HSA and combine it with secondary insurance that is not HDHP (our case). Is any one aware of this rule that secondary medical insurance plan makes you illegible for HDHP and HSA? If IRS does not allow primary HDHP with HSA to be combined with secondary non-HDHP plan, can my wife keep her HDHP plan but opt out from having an HSA acocunt (which is primarily funded by her employer)? My wife's employer does offer non-HDHP as well but for higher premium, should we go for this option? Thanks for anyone who can shed some light on this.

[dmertz · Accepted solution]

Your wife can still participate in the HDHP plan, but having the non-HDHP coverage at the same time would make your wife ineligible to make an HSA contribution herself or have an HSA contribution made on her behalf by her employer (or by anyone else).

See IRS Pub 969:  https://www.irs.gov/pub/irs-pdf/p969.pdf

[Alex_Alex]

Thanks dmertz for your feedback and confirmation .. then i think it makes more sense to shift my wife's primary plan to the PPO plan and have my family PPO  plan as her secondary and setup either one or two FSA, the FSA/FSAs will be within the IRS allowed limit ..  that should work right?

[ebenann]

What about the other way round. Searching for an answer in the forum; Can my wife be covered secondarily under my HDHP and have her own individual non-HDHP? If yes, what are my contribution limits to my HSA?

[Opus 17]

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@ebenann wrote:

What about the other way round. Searching for an answer in the forum; Can my wife be covered secondarily under my HDHP and have her own individual non-HDHP? If yes, what are my contribution limits to my HSA?

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If I understand your question, the answer is yes.

Your eligibility to contribute is determined by your insurance coverage.  If you are enrolled in a family HDHP, and you have no other medical coverage, then your contribution limit for 2023 is $7750.  It doesn't matter how many other people are covered under your plan (spouse, dependents) or what their other medical coverage is.  It's ok if your spouse has medical coverage from their job and has your plan listed as secondary coverage, as long as your spouse's plan does not provide any (reciprocal) coverage to you.  

Be aware that this includes FSAs.  If your spouse has a medical FSA, that counts as other coverage for you, because even if your spouse has single coverage and their insurance does not cover you, an FSA by law always covers the owner, their spouse, and any dependents.

[ebenann]

Thanks for the response. My wife does have an FSA so it appears I will not be able to contribute to an HSA. Lesson learned for next enrollment period. 

[Opus 17]

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@ebenann wrote:

Thanks for the response. My wife does have an FSA so it appears I will not be able to contribute to an HSA. Lesson learned for next enrollment period. 

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Some more info about FSAs then.

If your wife is "covered" by an FSA for the period Jan 1-December 31, then you are ineligible even if all the money was spent before the end of the coverage period.  Some plans have a 2 month grace period, allowing expenses that occur as late as Feb 28 of the next year to be reimbursed even though the FSA ended on 12/31.  In the case of a grace period, you are still "covered" if there are funds in the FSA but you are not covered if the funds are used up before the start of the grace period.

Also, if your wife's plan is not on a calendar year basis but something else (like July 1-June 30), then you would be eligible to contribute when the FSA ends.  And in that case, you can use the "last month rule" to contribute the full amount to your HSA as if you were eligible all year.

Lastly, your wife can enroll in a "limited purpose FSA" at the next enrollment cycle without making you ineligible to contribute to an HSA, assuming her employer offers limited purpose FSAs.   A limited purpose FSA is only allowed to cover things like contacts, eyeglasses, dental care, braces, and a few other things that don't interfere with your HDHP.  So a limited purpose FSA could be used to pay for glasses or contacts without having to dip into the HSA, if her employer offers it.  You can read more about all these rules here.

https://www.irs.gov/forms-pubs/about-publication-969

[dmertz]

"If your wife is "covered" by an FSA for the period Jan 1-December 31, then you are ineligible even if all the money was spent before the end of the coverage period."

To be more accurate, you are ineligible to contribute to an HSA for the period not because your wife is covered by the FSA but because your wife's FSA also covers you as spouse.

[ebenann]

What happens to the employer contributions to the HSA, my contribution will be 0 but it appears my employer still contributes $1000 to the HSA in the plan year. Does this make me non compliant to the IRS rules? 

[Opus 17]

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@ebenann wrote:

What happens to the employer contributions to the HSA, my contribution will be 0 but it appears my employer still contributes $1000 to the HSA in the plan year. Does this make me non compliant to the IRS rules? 

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If you are ineligible for all of 2023 but your employer contributes $1000, you must either:

a. withdraw the $1000 before April 15, 2024 as a "return of excess contribution."  It will be added back to your taxable income (because you aren't eligible to exclude it from income) but you won't pay a penalty.  Note that a return of excess contribution is a special procedure that may require a special form, it is not a regular withdrawal.

b. leave the money in the account. It will be added back to your taxable income (because you aren't eligible to exclude it from income) and it will be subject to a 6% penalty.  It will be considered "excess funds" in the account and will be subject to a further 6% penalty for every future year that it remains considered to be excess.  If you plan to be eligible in 2024, the easiest way to remove the excess will be to contribute less than the maximum in 2024 which allows you to apply the prior excess to the new year limit and "use up" the excess.  For example, if the 2024 limit were $7800, you could contribute $6800 (combined you and your employer) and the old $1000 excess would be counted toward your overall limit. 

If you want to keep the account open, because you plan to be eligible in the future, it might be worth eating the $60 penalty for 2023.  It's up to you.

Also, if you spend the $1000 for qualified medical expenses, there will be no penalty because the penalty is calculated from the amount of excess contribution in the account or the account balance, whichever is less. (The excess contribution will still be added back to your taxable income no matter what.)