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HSAs and HRAs

Am I HSA eligible?

If you are currently using a general purpose Health Reimbursement Account, you are not eligible to open a Health Savings Account.

If you are currently using a limited purpose Health Reimbursement Account, you may be eligible to open a Health Savings Account.  You can convert a general purpose HRA to a limited purpose HRA, but you will need to contact your HRA provider directly to explore this option.

Planning on switching from an HRA to a HSA?

HRA users must have a $0 balance by the end of the month in order to be HSA-eligible on the first of the next month unless they opt to suspend their HRA for the plan year (see Reference A below). During the plan year, they would be unable to reimburse themselves for any expenses, even if incurred in the previous plan year. The IRS determines balances on a cash basis (see Reference B below).

HRA users can be allowed to suspend their HRA for the plan year and be HSA-eligible for the plan year. (see Reference C below.) The following year they can either opt to re-suspend their HRA and maintain HSA eligibility, or use their HRA and stop funding their HSA. Either way, they can continue using their HSA for any qualified expenses.

IRS References

Reference A:  PERMANENT RULE -- INDIVIDUALS WITH A ZERO BALANCE IN GENERAL
PURPOSE HRA ON THE LAST DAY OF PLAN YEAR
IRS 2004-22 http://www.irs.gov/irb/2004-22_IRB/ar06.html
An individual with a zero balance in a general purpose HRA, determined on a cash
basis, on the last day of the HRA plan year, does not fail to be an eligible individual on
the first day of the immediately following HRA plan year, so long as (1) effective on the
first day of the immediately following HRA plan year, the employee elects to waive
participation in the HRA, or (2) effective on or before the first day of the following HRA
plan year, the employer terminates the general purpose HRA with respect to all
employees, or (3) effective on or before the first day of the following HRA plan year, with
respect to all employees, the employer converts the general purpose HRA to an HSA compatible
HRA, as described in Rev. Rul. 2004-45.


Reference B: BALANCES DETERMINED ON CASH BASIS
IRS Notice 2007-22
http://www.irs.gov/pub/irs-drop/n-07-22.pdf
For all purposes, balances are determined on a cash basis. Cash basis means the
balance as of any date, without taking into account expenses incurred that have not
been reimbursed as of that date. Thus, pending claims, claims submitted, claims
received or claims under review that have not been paid as of a date are not taken into
account for purposes of determining the account balance as of that date. See Prop. Treas.
Reg. § 1.125-2, Q&A-7(b)(2).

 

Reference C: SUSPENDED HRA.
IRS Notice 2007-22
http://www.irs.gov/pub/irs-drop/n-07-22.pdf
A suspended HRA, pursuant to an election made before the beginning of the HRA coverage period, that does not pay or reimburse, at any time, any medical expense incurred during the suspension period except preventive care, permitted insurance and permitted coverage (if otherwise allowed to be paid or reimbursed by the HRA). The individual is an eligible individual for the purpose of making contributions to an HSA. When the suspension period ends, the individual is no longer an eligible individual because the individual is again entitled to receive payment or reimbursement of section 213(d) medical expenses from the HRA. An individual who does not forgo the payment or reimbursement of medical expenses incurred during an HRA coverage period, is not an eligible individual for HSA purposes during that HRA coverage period.

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