Changing Health Insurance: HSA Contributions and Eligibility

Changing health insurance plans, mid-year, will also effect your HSA-eligibility. Make sure you review your prospective health insurance plan to understand if you will retain your HSA-eligibility. We will outline how to pro-rate your HSA contributions to stay IRS complaint if your new health insurance plan is not HSA-eligible.

Is Your New Health Insurance Plan HSA-Eligible?

In order to determine if you can continue contributing to your HSA, you must first determine if your new health insurance plan is HSA-eligible. But don’t worry, we have outlined all of that for you here.

As a quick reference point, in 2019, your health insurance must have an annual minimum deductible of $1,350 for individuals and $2,700 for families. In addition, the annual out-of-pocket maximum can’t be more than $6,750 for individuals and $13,300 for families. This definition only applies to the in-network services.

So what must you do if you switch to a health insurance plan that is not HSA-eligible to stay IRS compliant?

Prorated HSA Contributions When You Change Health Insurance Plans

If you change or end your health insurance plan and are no longer covered by an HSA-eligible health insurance plan, like an HDHP, you are subject to pro-rated HSA contributions amounts.

The most straightforward way to understand HSA contribution limits for mid-year changes is to contribute based on a pro-rated calendar schedule. HSA eligibility is determined on the 1st of every month. For example, if your HSA-eligible health plan ended on May 15th, your HSA (individual or family) would be prorated for 5 months (out of 12) for 2019 – January to May.

Based on the current 2019 HSA contribution limits ($3,500 for individuals and $7,000 for families), this prorated 5 months of eligibility would calculate to $1,458 for individuals and $2,916 for families.

Other HSA-Eligibility Factors to Consider

This proration of HSA contributions would also come into effect in the following scenarios. This is in addition to health plan eligibility.

• You can’t have or be eligible to use a general purpose Flexible Spending Account (FSA). Limited purpose FSAs are allowed for dental, vision, and dependent care if your HDHP doesn’t cover those services.
• You can’t be claimed as a dependent on someone else’s tax return.
• You can’t be enrolled in Medicare (Part A and Part B) or Medicaid.

You can read all the details about HSA-eligibility here.

What if I Over-Contributed to my HSA?

Using the formula above you can also determine if you have over-contributed to your HSA. If you have over-contributed to your HSA, you have two options:

What About Existing HSA Funds?

While HSA contributions require eligibility, using your HSA (and any existing funds), does not. You can continue to use your HSA funds, tax-free, to pay for qualified out-of-pocket medical expenses. You may also continue to invest your HSA funds for years to come. After you are 65 years old, you can use your HSA funds for anything, not just qualified out-of-pocket medical expenses.

When you consider changing your health insurance plan, consider the additional financial impact it will have on your health benefits, like an HSA. While your health insurance is often the primary factor in healthcare decisions, don’t neglect the other connected health benefits, especially the ones that can reduce your out-of-pocket medical costs (hint, hint, an HSA).