Veterans Day Special: HSA Considerations for Veterans During Open Enrollment

Many veterans have access to VA health benefits, and many of those veterans are now employees with the option to enroll in a High Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA) during this open enrollment season.

The general rule for HSA eligibility is employees cannot make or receive HSA contributions if they are covered under another medical plan that is not a HDHP. Needless to say, VA coverage does not qualify as a HDHP.

This brings us to a very important question for veteran employees on this Veterans Day:

 How Does a Veteran’s Access to VA Benefits Affect HSA Eligibility?

  • Special Rule: VA Eligibility Not Disqualifying Coverage

The IRS’s special rule for veterans provides that mere eligibility for VA benefits is not disqualifying coverage for purposes of HSA eligibility—despite the fact that VA benefits are not subject to the minimum HDHP deductible. This is a sharp contrast from the general rule that any pre-deductible coverage blocks HSA eligibility.

This special rule prevents nearly the entire veteran population from being blocked from making or receiving HSA contributions because of their ability to access VA services. However, as described below, some veterans who utilize their VA benefits will temporarily lose HSA eligibility.

  • Veterans Who Access VA Benefits: Three-Month Block on HSA Eligibility

Except as described in the section blow, veterans who actually receive medical benefits from the VA do lose HSA eligibility. The IRS rules provide that individuals are not HSA-eligible if they received medical benefits from the VA at any time during the previous three months.

Again, veterans must actually access VA benefits for this three-month block on HSA eligibility to apply. Mere eligibility for VA benefits is not disqualifying coverage.

  • Veterans with Service-Connected Disabilities: Three-Month Rule Does Not Apply

In 2015, Congress passed a new law designed to enhance HSA eligibility for veterans with service-connected disabilities. The modification permits veterans enrolled in a HDHP (with no other disqualifying coverage) and who have a service-connected disability to make or receive HSA contributions regardless of if or when they received VA benefits.

Subsequent guidance from the IRS has confirmed that all VA services provided to a veteran with a service-connected disability are deemed to be provided for the veteran’s service-connected disability. This means that VA benefits will never be disqualifying coverage for veterans with a service-connected disability—even if the VA services are unrelated to the veteran’s service-connected disability.

Bottom Line: Veterans with a service-connected disability are not blocked from HSA eligibility, even if they accessed VA benefits in the prior three months.

Check out my September 27, 2018 ABD Office Hours Webinar Go All the Way with HSA: Everything HDHP/HSA You Need to Know for more details.

Contact Brian Gilmore at brian.gilmore [at] theabdteam.com for more info/questions!

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