Does having VA Health negate my employer's HDHP plan and mean I shouldn't even qualify for an HSA? (More detailed info included below.)

[vcarrero0516]

My partner previously had healthcare through the VA, but enrolled with his employer when he became eligible to in May 2017.

The plan through his work is a HDHP plan and he set up an HSA during enrollment (his employer makes contributions to the HSA).

The VA Health 1095-B still states he was covered for the entire year.

While doing taxes, TurboTax stated:

"Tell us what type of HDHP coverage you had for each month of 2017 [...] If you are covered by a HDHP andMedicare or another non-HDHP plan during the same month, select None."

Which leads me to believe that because the VA 1095-B states he was covered by the VA all year, he has to say he had NO HDHP coverage all year.

When we fill out the tax information using his employer coverage (which is HDHP), it takes about $450 off of his taxes due amount.

When we fill out the tax information saying that he had NO HDHP coverage all year (due to having VA Coverage in addition to the HDHP), he still owes almost $500 in taxes.

He hasn't used the VA coverage since he was eligible to enroll in his employer's plan. He didn't even know he could disenroll from the VA coverage.

Why would they penalise a veteran for having VA coverage?

Furthermore, while trying to google info on this to figure out what is the right course of action, I came across something that implies he shouldn't even have the HSA and will have penalties because of it.

"To have an HSA, you can only have had and HDHP plan when you started to make contributions to the HSA. If this was not the case (you still had VA insurance at the same time you had the HDHP), then you will want to contact your plan administrator of your HSA and request and excessive contribution withdrawal or you will pay penalties on your tax return for a disallowed contribution to your HSA." Source

Any help is appreciated.

[BMcCalpin]

We would like to thank your partner for his service.

The IRS said in IRS Notice 2004-50, Q&A-5:

"Q-5. If an otherwise eligible individual under section 223(c)(1) is eligible for medical benefits through the Department of Veterans Affairs (VA), may he or she contribute to an HSA?

A-5. An otherwise eligible individual who is eligible to receive VA medical benefits, but who has not actually received such benefits during the preceding three months, is an eligible individual under section 223(c)(1). An individual is not eligible to make HSA contributions for any month, however, if the individual has received medical benefits from the VA at any time during the previous three months." 

Note that per IRS Notice 2008-59 (Q&A-9), the three-month limitation does not apply if the VA benefits were paid for

• Dental 
• Vision or
• Preventive Care 

Starting in 2016, Congress provided an additional benefits for veterans: veterans with a service-related disability are not subject to the three month rule if they receive VA benefits related to that disability. Note that the IRS further clarified this law with IRS Notice 2015-87, Q&A-20.

In short, for veterans - and only for veterans who are eligible for VA benefits - your eligibility to contribute to your HSA varies month by month based on whether you actually received health benefits from the VA in the last three months and what the benefits were for.

In your case, since you state that your partner has received no VA benefits, then he is permitted to indicate qualified HDHP coverage as Self or Family (depends on the HDHP plan) for every month he did not receive the benefits and was under the HDHP.

And in the future, bear in mind that the three month rule is waived for certain benefits (vision, etc. and service-related disabilities). 

[dwoliver65]

It is also important to keep in mind that there was clarification from the IRS as well on this topic.  IRS guidance now includes:  "an individual actually receiving medical benefits from the VA is not disallowed from making HSA contributions if the medical benefits consist solely of (1) disregarded coverage, (2) preventive care, or (3) hospital care or medical services under any law administered by the Secretary of Veterans Affairs for service-connected disability (within the meaning of § 101(16) of title 38, United States Code). Distinguishing between services provided by the VA for service connected disabilities and other types of medical care is administratively complex and burdensome for employers and HSA trustees or custodians. Moreover, as a practical matter, most care provided for veterans who have a disability rating will be such qualifying care. Consequently, as a rule of administrative simplification, for purposes of this rule, any hospital care or medical services received from the VA by a veteran who has a disability rating from the VA may be considered to be hospital care or medical services under a law administered by the Secretary of Veterans Affairs for service connected disability.

[BMcCalpin]

Thanks for the clarification. As you see, I referred to that notice (2015-87) and Answer (#20) in my response, but I have to admit that it doesn't seem to me that the original IRS answer contained the explicit reference to the administrative burden causing the IRS to treat any treatment for such a vet to be assumed to be related to the disability; otherwise, I believe that I would have referred to it. I am not saying that the IRS changed the answer...but I have my suspicions...🙂

In any case, this is a good point - the vet with a service-related disability does not have to prove that the VA care was related to his/her disability - a considerable simplification - in order to claim no disallowed coverage for the HSA/HDHP.

[cturmann]

If a person uses VA health care, has a service-connected disability, and contributes to a Self-only, HDHP, he/she would be able to mark self only under Type of HDHP Coverage even though he/she was covered under both?

[BillM223]

Yes, you would be able to mark Self-only in this case. This is because of the IRS's Question #20 in IRS Notice 2015-87.

Essentially, the IRS admitted that since Congress did not want to punish veterans from having access to an HSA and because the IRS understood that most care provided to veterans was probably related to the service disability (and would not be worth investigating), the IRS says that in this case, because you have a service-related disability, that the VA coverage will not be a disqualifying coverage where HDHP coverage is concerned.

[Jgwentworry]

Following up on this thread-

Wife is covered by Champva. Wife is not a Veteran. GEHA enrollment was and is adamant wife can have HSA while being covered by Champva. GEHA and Champva are aware of each other. GEHA is referencing answer 20.

Answer 20: As modified by the legislation, an individual actually receiving medical benefits from the VA is not disallowed from making HSA contributions if the medical benefits consist solely of (1) disregarded coverage, (2) preventive care, or (3) hospital care or medical services under any law administered by the Secretary of Veterans Affairs for service-connected disability (within the meaning of § 101(16) of title 38, United States Code). Distinguishing between services provided by the VA for service-connected disabilities and other types of medical care is administratively complex and burdensome for employers and HSA trustees or custodians. Moreover, as a practical matter, most care provided for veterans who have a disability rating will be such qualifying care. Consequently, as a rule of administrative simplification, for purposes of this rule, any hospital care or medical services received from the VA by a veteran who has a disability rating from the VA may be considered to be hospital care or medical services under a law administered by the Secretary of Veterans Affairs for service-connected disability.

Is the ambiguity of "individual" causing a misinterpretation of the answer?

At a loss,

Thanks!