Life Changes and HSAs: Employees Experiencing a Job Change
Maintaining health insurance coverage when experiencing a job change can be one of the most stressful components for employees. If you have an employee experiencing a job change, here is some useful information the employee should know about their health savings account (HSA) as they move forward.
A Job Change's Effect on an HSA
The money contributed to an HSA belongs to that employee and goes with them when they leave an employer. Account holders can also continue to use their HSA funds to pay for qualified medical expenses after a job loss.
If an HSA is part of an employer group plan, once an employee leaves the company, their account automatically becomes an individual HSA. Further will send a letter to the employee that explains the change and individual plan options available. The biggest difference account holders may notice between a group plan and an individual plan is that monthly administrative fees will automatically be withdrawn from their HSA balance. (Previously an employer may have paid these fees.)
The High Deductible Plan Requirement
While HSA holders can continue to reimburse themselves for eligible expenses after a layoff or termination, they should remember that to contribute funds to an HSA, the IRS requires that the account be paired with a high deductible health plan (HDHP).
If an individual wants to continue making HSA contributions after leaving their employer, they have two options:
Enroll in COBRA coverage to maintain their HSA-qualified plan
COBRA, or the Consolidated Omnibus Budget Reconciliation Act, requires certain employers (private-sector companies with 20+ employees as well as state and local governments) to provide individuals who lose their health insurance the right to continue group coverage for a certain amount of time. This is typically 18 months for a voluntary or involuntary termination. Find out more about your COBRA eligibility here.
Enroll in individual health insurance
Terminated employees can opt for a qualifying high-deductible plan through their state’s health insurance exchange. To be eligible to contribute to an HSA, IRS 2021 guidelines require an HDHP to have a minimum annual deductible of $1,400 for an individual ($2,800 for families) and an out-of-pocket maximum of $7,000 ($14,000 for families). Learn more about HSAs and qualifying HDHP plans here.
It's also important to know that when someone is between jobs and receiving unemployment benefits, their health insurance premiums – whether they are for COBRA or individual insurance – become an eligible medical expense. That means that until they establish new employment, an HSA holder can use their previously saved contributions to help pay the costs of maintaining health coverage.
Starting a New Job
Joining a new employer can be a great relief after a job loss. If the employer offers an HSA-qualified HDHP, the new employee can join that group plan and keep contributing to their Further HSA. If the company doesn’t offer a HDHP, the individual can continue to make eligible withdrawals and spend their HSA funds but won’t be able to add new contributions.
If the new employer offers its own HSA, the employee can open a second HSA while still contributing to their Further account. Between the total of the two accounts, an individual can save up to the maximum annual contribution limit, $3,600 (or $7,200 for family coverage) in 2021.
We know that navigating a job loss can be difficult. The Further customer team is always available to offer assistance and answer questions at 800-859-2144 and CustomerSolutions@HelloFurther.com.