It’s no secret that one of the pri­ma­ry agen­da items of the new Repub­li­can admin­is­tra­tion is to repeal the Patient Pro­tec­tion and Afford­able Care Act (ACA) and to sign into law a plan that they feel will be more effec­tive in man­ag­ing health care costs. Their ini­tial attempt at a new plan, called the Amer­i­can Health Care Act (AHCA), includ­ed an increased focus on lever­ag­ing health sav­ings accounts (HSAs) to accom­plish this goal. As the plan gets debat­ed and mod­i­fied in Con­gress, we do not know whether the role of HSAs will be expand­ed or not, but they will con­tin­ue to be a part of the land­scape in some shape or form.

HSAs first came into exis­tence in 2003 and they have been gain­ing momen­tum as a way to deal with increas­ing health care costs ever since. If you, as a plan spon­sor, do not already offer a health plan com­pat­i­ble with an HSA, chances are you’ve at least dis­cussed them dur­ing your annu­al plan reviews. So, what exact­ly is an HSA and what is an employer’s respon­si­bil­i­ty relat­ing to one?

An HSA is a tax-favored account estab­lished by an indi­vid­ual to pay for cer­tain med­ical expens­es incurred by account hold­ers and their spous­es and tax depen­dents. Any­one can make a con­tri­bu­tion to an eli­gi­ble Individual’s HSA. This includes the individual’s employ­er. How­ev­er, if employ­ers con­tribute to par­tic­i­pant HSAs, employ­ers must:

  1. Ensure their health plan meets high-deductible health plan (HDHP) requirements,
  2. Deter­mine eligibility,
  3. Estab­lish con­tri­bu­tion method,
  4. Pro­vide W‑2 report­ing, and
  5. Con­firm employ­er involve­ment in the HSA does not cre­ate an ERISA plan, or cause a pro­hib­it­ed transaction.

High-Deductible Health Plan Requirements

Plan spon­sors should make sure their plan meets cer­tain HDHP require­ments before mak­ing con­tri­bu­tions to par­tic­i­pants’ HSAs.

Char­ac­ter­is­tics of an HDHP

An HDHP is a health plan that has statu­to­ri­ly pre­scribed min­i­mum deductible and max­i­mum out-of-pock­et lim­its. The lim­its are adjust­ed annu­al­ly for inflation.

For exam­ple, for 2017, the lim­its for self-only cov­er­age are:

  • Min­i­mum Deductible: $1,300
  • Max­i­mum Out-of-Pock­et: $6,550

The lim­its for fam­i­ly cov­er­age (i.e., any cov­er­age oth­er than self-only cov­er­age) are twice the applic­a­ble amounts for self-only cov­er­age. The lim­its are adjust­ed annu­al­ly for infla­tion and, for a giv­en year, are pub­lished by the IRS no lat­er than June 1 of the pre­ced­ing year. In addi­tion, an HDHP can­not pay any ben­e­fits until the deductible is met. The only excep­tion to this rule is ben­e­fits for pre­ven­tive care.


Eli­gi­ble Indi­vid­u­als can make or receive con­tri­bu­tions to their HSAs. A per­son is an eli­gi­ble indi­vid­ual if he or she is cov­ered by an HDHP and is not cov­ered by any oth­er plan that pays med­ical ben­e­fits, sub­ject to cer­tain exceptions.

Employer Contribution Methods

Employ­ers that con­tribute to the HSAs of their employ­ees may do so inside or out­side of a cafe­te­ria (Sec­tion 125) plan. The con­tri­bu­tion rules are dif­fer­ent for each option.

Con­tri­bu­tions Out­side of a Cafe­te­ria Plan

When con­tribut­ing to any employee’s HSA out­side of a cafe­te­ria plan, an employ­er must make com­pa­ra­ble con­tri­bu­tions to the HSAs of all com­pa­ra­ble par­tic­i­pat­ing employees.

Con­tri­bu­tions Made Through a Cafe­te­ria Plan

HSA con­tri­bu­tions made through a cafe­te­ria plan do not have to sat­is­fy the com­pa­ra­bil­i­ty rules, but are sub­ject to the Sec­tion 125 non-dis­crim­i­na­tion rules for cafe­te­ria plans. HSA employ­er con­tri­bu­tions will be treat­ed as being made through a cafe­te­ria plan if the cafe­te­ria plan per­mits employ­ees to make pre-tax salary reduc­tion contributions.

Employer HSA Contribution Amounts

Con­tri­bu­tions from all sources can­not exceed cer­tain annu­al lim­its pre­scribed by the IRS. Although employ­er con­tri­bu­tions can­not exceed the applic­a­ble lim­its, employ­ers are only respon­si­ble for deter­min­ing the fol­low­ing with respect to an employee’s eli­gi­bil­i­ty and max­i­mum annu­al con­tri­bu­tion lim­it on HSA contributions:

  • Whether the employ­ee is cov­ered under an HDHP or low-deductible health plan, or plans (includ­ing health flex­i­ble spend­ing accounts (FSAs) and health reim­burse­ment arrange­ments (HRAs) spon­sored by that employ­er; and
  • The employee’s age (for catch-up con­tri­bu­tions). The employ­er may rely on the employee’s rep­re­sen­ta­tion as to his or her date of birth.

When employ­ers con­tribute to the HSAs of their employ­ees and retirees, the amount of the con­tri­bu­tion is exclud­able from the eli­gi­ble individual’s income and is deductible by the employ­er pro­vid­ed they do not exceed the applic­a­ble lim­it. With­hold­ing for income tax, FICA, FUTA, or RRTA tax­es is not required if, at the time of the con­tri­bu­tion, the employ­er rea­son­ably believes that con­tri­bu­tion will be exclud­able from the employee’s income.

Employer Reporting Requirements

An employ­er must report the amount of its con­tri­bu­tion to an employee’s HSA in Box 12 of the employee’s W‑2 using code W.

Design and Operational Considerations

Employ­ers should make sure that their involve­ment in the HSA does not cre­ate an ERISA plan, or cause them to become involved in a pro­hib­it­ed trans­ac­tion. To ensure that con­tri­bu­tions will not cause the health plan to become sub­ject to ERISA, cer­tain restric­tions exist that employ­ers should be aware of and fol­low. Employ­er con­tri­bu­tions to an HSA will not cause the employ­er to have estab­lished a health plan sub­ject to ERISA provided:

  • The estab­lish­ment of the HSA is com­plete­ly vol­un­tary on the part of the employ­ees; and
  • The employ­er does not: 
    • lim­it the abil­i­ty of eli­gi­ble indi­vid­u­als to move their funds to anoth­er HSA or impose con­di­tions on uti­liza­tion of HSA funds beyond those per­mit­ted under the code;
    • make or influ­ence the invest­ment deci­sions with respect to funds con­tributed to an HSA;
    • rep­re­sent that the HSA is an employ­ee wel­fare ben­e­fit plan estab­lished or main­tained by the employer;
    • or receive any pay­ment or com­pen­sa­tion in con­nec­tion with an HSA.

Orig­i­nal­ly pub­lished by