Big life events such as marriage, the birth of a child, or retirement are often some of the most exciting times in life — but can also create challenges.
Details like obtaining a marriage certificate or setting up a nursery are important, but it’s just as crucial to think about changes to health insurance to accommodate the next phases of life.
The employer and health savings accounts (HSAs)
The longer an employee stays at an organization, the more likely they are to experience one or more life events while working there. As an employer, it’s important to share information about how different life-changing scenarios may affect employees and their health care benefits, especially if you offer a high deductible health plan with an HSA. HSAs have unique rules when it comes to life changes. The better prepared your employees are for these events, the less stress for everyone involved – including yourself!
Marriage and HSAs
When people get married, an important decision to make is what to do about health insurance, especially if both partners are employed. Depending on the health plans offered by their employers, it may be more beneficial for each of them to keep individual plans, or it may make more sense to choose a single plan covering both individuals.
Here are some points to keep in mind regarding HSAs and a marriage life change:
- If both individuals have their own HSA, they cannot create a joint HSA. They can enroll in an employee + spouse, or family high deductible health plan (HDHP).
- Changing from an individual plan to a family plan increases the amount the couple can contribute for the year (in 2019, the contribution maximums are $7,000 for family plans and $3,500 for individual plans).
- If each spouse wants to contribute to an HSA, they must have separate HSAs, and dollars cannot be transferred from one account to another. If they both have employers contributing to their individual HSAs, they cannot combine the contributions into the same account.
- One spouse may use his or her HSA to pay for eligible medical expenses of the other. This can be helpful if one spouse has a more generous employer contribution than the other, or if one spouse has more significant medical expenses than the other.
New children and HSAs
If an employee adopts or has a new child, he or she may choose to change coverage to a family health plan, or an employee + child health plan. Similar to an employee getting married, the employee should consider the new plan premiums and deductibles that may come along with a new plan.
Here are some points to keep in mind regarding HSAs and a new child life change:
- Provide employees with information on several pregnancy-related expenses eligible for HSA reimbursement, including ultrasounds, prenatal vitamins, breast pumps and supplies, and even in vitro fertilization and other fertility treatments.
- HSAs don’t cover maternity clothes or daycare, but many employers do offer a Dependent Care Assistance Program (DCAP), so make sure your employees are aware of your organization’s program if offered.
- Employees with adult children should be aware that even though parents are allowed to keep children on their HDHPs up to age 26, they can only use their HSA to pay for a child’s expenses if the child qualifies as a tax dependent.
- If the adult child is no longer a tax dependent, the child must open his or her own HSA to pay for his or her own expenses. The child can still contribute the family maximum to their own account if they are on their parents’ HDHP.
Retirement and HSAs
Employees who have HSAs and are nearing retirement age may ask what they can do with their account in retirement. Here are a few good points for those employees to keep in mind:
- Once enrolled in Medicare, they can no longer contribute.
- It is not mandatory to withdraw anything from an HSA when the account holder turns 65, but the retiree can withdraw their money for any reason and avoid the tax penalty they would have incurred for withdrawing the same money before turning 65. But keep in mind they will have to pay regular taxes on that money if not used for qualified medical expenses.
- Premiums for Medicare Parts A, B, C and D are eligible to be paid for with HSA funds by account holders age 65 or older.
- If the account holder’s spouse enrolls in Medicare first, it may eliminate family coverage with the HDHP and drop the account holder’s coverage to single status. That would change the contribution limits of the HSA for that year to a prorated amount.
- Remind employees 55 and older that they can contribute an extra $1,000 each year to help boost their HSAs before retirement. Also, if an employee is on a family plan and the spouse is 55, the spouse can set up his or her own HSA and make another maximum contribution including the extra $1,000.