Which supplemental medical products disqualify HSA eligibility?

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By:          Zack Pace, SVP, Benefits Consulting

If your company sponsors voluntary supplemental medical products, such as hospital indemnity, critical illness, cancer, or accident, have you received conflicting or confusing opinions, from time to time, regarding if these products disqualify an individual from contributing to a Health Savings Account (HSA)? Per IRS Publication 969, to be eligible to contribute to a HSA, an individual must be enrolled in a High Deductible Health Plan, cannot be enrolled in another health plan, cannot be enrolled in Medicare, and cannot be claimed as a dependent on someone else’s tax return.

Publication 969 then provides a listing of the “additional insurance” an HSA- eligible individual may purchase that is not considered additional health coverage. However, the publication’s language is not descriptive:

  • Liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities related to ownership or use of property.
  • A specific disease or illness.
  • A fixed amount per day (or other period) of hospitalization.

You can also have coverage (whether provided through insurance or otherwise) for the following items.

  • Accidents.
  • Disability.
  • Dental care.
  • Vision care.
  • Long-term care.

To bring clarity to this topic, I asked my CBIZ colleague William M. Smith, Esquire, from our national tax office a series of questions. The result was our Q&A for Employee Benefit News Which voluntary products disqualify HSA eligibility? You may need to register with Employee Benefit News to view it.

Upon reading Bill’s concluding admonishment in the final Q&A, I remarked that his prose reminded me of Miguel De Cervantes. Bill then reminded me that Cervantes was also a tax professional – prior to writing Don Quixote, Miguel served as a tax collector. . .

You can reach me on zpace@cbiz.com or via Twitter. My collection of LinkedIn essays is located here, and my Employee Benefit News articles are available here.

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Zack Pace

Zack Pace, SVP, Benefits Consulting at CBIZ Inc., and his team design, implement, and manage benefits packages that are highly effective at empowering clients to attract and retain the top talent needed in order to outperform competitors, while ensuring that the cost of the overall benefits program and its components are cost-effective.
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