Life Changes and HSAs: Employees Expanding Their Family Through Birth or Adoption
The life change of a new baby — whether from birth or adoption — is an exciting one.1
But a new baby can come with a high price tag. The cost of a delivery with insurance can range from $5,000 to nearly $14,5001, according to Fair Health data. Adoption expenses can vary, but can cost up to $70,000 at the high end for an international adoption.2
You can help educate employees on how to best manage their health savings account (HSA) to maximize coverage for them and their new child and to ease the stress of having a new baby.
Adding a new child to a health plan
As soon as a new family member arrives, employees should adjust their health insurance plan to add the new child to health insurance plans. This should occur within 30 days of the birth to ensure that medical coverage is effective as of a baby’s birth.3 Urgency is also important to ensure appropriate access to their health savings accounts (HSA). Once they are added to a family’s high deductible health plan (HDHP) as a tax dependent, the child’s eligible medical expenses will qualify for HSA reimbursement.
If the employee with the new baby previously had an individual HSA, their HSA contribution limit increases to the family coverage limit on the first day of the first full month after which they move to a family HDHP. (For the 2022 tax year, the family coverage limit is $7,300, compared to the individual limit of $3,650.)
Information about marital status
There are a couple of important things to know about marital status as it relates to having or adopting a new baby.
· If the parents are married and an employee is already on a family plan, their HSA contribution limit will stay the same. The family contribution limit does not change regardless of how many immediate family members are on the plan.
· If the parents are not married and not on the same health plan, the mother may use her HSA for any eligible medical expenses throughout pregnancy. The child is eligible to be added to the health plan belonging to whichever parent claims the child as a tax dependent. As soon as the child is born, whichever parent adds the child to their health plan would be able to use his or her HSA to pay for the child's medical expenses.
Similarly, medical expenses for an adopted child are eligible for HSA reimbursement once they become a tax dependent. (Fees associated with the adoption process are not eligible.)
Eligible expenses for parents and children
Many medical expenses related to the birth of a child are eligible for HSA reimbursement. The child's health expenses are also eligible once they are a tax dependent.
Additionally, there are pre- and postnatal items that are HSA-eligible, including:
· Prenatal/postnatal exams
· Pregnancy test kits
· Prenatal vitamins
· A complete list of eligible expenses can be found here.
Advanced child tax credit payments and HSAs
Recent changes to the Advance Child Tax Credit helped many families get early payments of the credit this summer.4 Contributing these funds to their HSA is great way to prepare for both routine and unexpected health care costs for their family.
About Further's Adoption Assistance Program
Employers: Further recently added a new product that may be of value to your team members while also creating a competitive edge in recruitment and retention of employees, increasing employee loyalty – an Adoption Assistance Program (AAP). An AAP account is an employer-sponsored spending account that allows both employer and employee contributions to pay for eligible adoption-related expenses. Contributions are pretax and can be deducted from participating employees’ paychecks to fund the AAP account. The employee decides how much to contribute, tax-free, for the year, up to $14,4005, the Internal Revenue Service (IRS) limit for 2021.
Navigating life changes, especially once the a new child has arrived, can be complicated. The Further customer team is always available to offer employees assistance and answer questions at 800-859-2144 and CustomerSolutions@HelloFurther.com.
1 How Much Does it Cost to Have a Baby? https://smartasset.com/financial-advisor/cost-of-having-a-baby
2 Average Adoption Costs in the United States. https://www.familyequality.org/resources/average-adoption-costs-in-the-united-states/
2 Protections for Newborns, Adopted Children, and New Parents...The Newborns' and Mothers' Health Protection Act of 1996. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/protections-for-newborns
4 Advance Child Tax Credit Payments in 2021. https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021
5 Per IRS regulations, Further’s AAP is available to employees with a Modified Adjusted Gross Income (MAGI) of $216,659 or less. If an employee’s MAGI is more than $216,660 but less than $256,660, they can contribute a portion of the $14,440 limit per child in 2021. Those employees with a MAGI of $256,660 are not eligible for this benefit.