8826 / Who is an eligible individual for purposes of maintaining an HSA?

An “eligible individual” for purposes of maintaining an HSA is an individual who, for any month, is covered under a high deductible health plan (HDHP) as of the first day of that month and is not also covered under a non-high deductible health plan providing coverage for any benefit covered under the HDHP.¹

Individuals who are enrolled in Medicare Part A or Part B are not eligible to contribute to an HSA.² Mere eligibility for Medicare does not preclude HSA contributions.³ Under the 2020 CARES Act, telehealth and other remote health care services are disregarded in determining eligibility for tax years beginning on or before December 31, 2021.

If an individual has received medical benefits through the Department of Veterans Affairs within the previous three months, the individual may not contribute to an HSA for the current month. Mere eligibility for VA medical benefits will not disqualify an otherwise eligible individual from making HSA contributions.⁴

If an individual is covered by a separate prescription drug plan that provides any benefits before a required high deductible is satisfied, the individual normally does not qualify as an eligible individual.⁵ Despite this general rule, the IRS has ruled that if an individual’s separate prescription drug plan does not provide benefits until an HDHP’s minimum annual deductible amount has been met, then the individual will be an eligible individual under Section 223(c)(1)(A). For calendar years 2004 and 2005 only, the IRS provided transition relief such that an individual would not fail to be an eligible individual solely by virtue of coverage by a separate prescription drug plan.⁶

If an individual is covered under an Employee Assistance Program, disease management program, or wellness program, that individual will not fail to be an eligible individual based solely on this coverage if the program does not provide significant benefits in the nature of medical care or treatment.⁷

Certain types of insurance are not considered in determining whether an individual is eligible for an HSA. Specifically, insurance for a specific disease or illness, hospitalization insurance paying a fixed daily amount, and insurance providing coverage that relates to certain liabilities are disregarded.⁸

In addition, coverage provided by insurance or otherwise for accidents, disability, dental care, vision care, or long-term care will not adversely impact HSA eligibility.⁹

If an employer contributes to an eligible employee’s HSA, in order to receive an employer comparable contribution the employee must:

(1)  establish the HSA on or before the last day in February of the year following the year for which the contribution is being made and;

(2)  notify the appropriate contact person of the HSA account information on or before the last day in February of the year described in (1) above and specify and provide HSA account information (such as the account number, name and address of trustee or custodian, etc.) as well as the method by which the account information will be provided (whether in writing, by e-mail, on a certain form, etc.).¹⁰

An eligible employee that establishes an HSA and provides the information required as described in (1) and (2) above will receive an HSA contribution, plus reasonable interest, for the year for which contribution is being made by April 15 of the following year.¹¹