Ask the Expert: I Need Help with the Rules for FSA and HSA Eligibility!

Can an employee open up a Health Savings Account (HSA) if their spouse has a general purpose Flexible Spending Account (FSA)? If not, can they open up the HSA account once their spouse’s FSA is exhausted and closed? And once they do this, how does the employer who is contributing to the HSA abide by the comparable contribution rules?

This interaction is complex, but generally an employee is not eligible for an HSA if that employee is also covered by any other benefit that provides first-dollar coverage for medical expenses. So if the spouse’s FSA could provide first-dollar coverage for the employee’s medical expenses, then the employee would not be eligible for an HSA.

In most cases a spouse’s FSA would be able to provide that first-dollar coverage and this would make the employee ineligible for the HSA. There are a few exceptions. First, certainly if the spouse’s FSA is a limited purpose or post-deductible FSA, then this would not be an account that would provide first-dollar medical coverage. Also, if the terms of the spouse’s FSA specify that the FSA funds cannot be used for the benefit of anyone other than the account holder (or his/her dependents), then this FSA would also not provide first-dollar coverage to the employee. However, FSAs with this limitation are rare, so it is more than likely that this spouse’s general purpose FSA will render the employee ineligible for HSA participation.

The length of time that the employee will be ineligible to participate in the HSA depends on the structure of the FSA. At minimum the employee will be ineligible for the entirety of the spouse’s FSA plan year, but if the FSA allows carryover of funds into the following year and the holder of the FSA opts to carry over any funds into a general purpose FSA account, then the HSA ineligibility period would extend through the following year. Similarly, if the FSA allows a grace period during which expenses incurred can be attributed to the previous plan year, then HSA ineligibility would also continue through that grace period.

So essentially, the employee would continue to be ineligible for HSA participation until there is no possibility of that employee also receiving first-dollar coverage from the spouse’s FSA.

Lastly, with regard to the comparable contribution rules, comparable contributions are required only for employees who are eligible to establish an HSA. So until the spouse’s FSA coverage ends and the employee becomes eligible to participate in the HSA, no comparable contributions would be required for the employee’s HSA.

However, once the employee does become eligible for an HSA, then If the employee establishes an HSA by the end of the group coverage year, the employer must make up any missed contributions (plus reasonable interest) that the employee would have been eligible to receive.

If the employee is able to quickly establish an HSA as soon as he or she becomes eligible to do so, then the employer may simply begin regularly scheduled contributions at that time. However, if there is a delay between the time that the employee becomes eligible for the HSA and the time that he or she completes enrollment, then the employer will need to make up any contributions that were missed due to that delay before April 15 of the following tax year.