You Are Locked into Your HSA Payroll Deduction for the Plan Year, Right? No.
By William Stuart | Originally posted on LinkedIn for MaxHSA
Health Savings Account pre-tax payroll contributions follow different rules from Health FSA elections.
Whether you're new to Health Savings Accounts or a veteran owner, be sure you understand the flexibility that you can tap to alter your contributions during the year.
How Health FSA Elections Work
For many Health Savings Account owners, a Health FSA was their gateway drug - their first experience with a tax-advantaged medical reimbursement account. Health FSAs have been around for four decades, and more companies offer them because participation is not tied to a particular medical plan.
One of the restrictive Health FSA rules is that participants must choose an election amount before the beginning of the plan year. Then, their employer divides this figure by the number of payroll periods and makes uniform deductions from each paycheck. The participating employee cannot change this election unless she experiences a qualifying life event such as marriage, divorce, birth, adoption, or death.
Among the events that do not qualify:
The participant is prescribed an expensive drug.
The participant faces unexpected surgery or a restorative dental procedure.
The medical plan and the Health FSA have different plan years, and the medical plan renewal includes much higher patient cost sharing.
A scheduled procedure is cancelled.
In each of these cases, the amount that the participant elected and the level of financial responsibility in her revised projection are different. Under Health FSA rules, she cannot increase or decrease her election due to any of the factors listed above.
These rules do not apply to Health FSAs only. Other Cafeteria Plan elements (Dependent Care FSAs are the most common example) also require a binding prospective election that can be modified only with a qualifying life event.