Clearing the Air on HSA and Employer-Sponsored Health Services

Many employees who are enrolled in High Deductible Health Plans (HDHPs) also opt to combine that coverage with a Health Savings Account (HSA). This account serves as a fund that they can use to pay for qualified medical expenses that an HDHP doesn't cover — or as an alternative to comprehensive health insurance.

Created as a way to control health care costs, HSAs are designed to encourage people to be more thoughtful about health care purchases by allowing participants to pay for current expenses as well as save for future costs on a tax-free basis.

Unlike a Flexible Spending Account (FSA), in which any money not used during the plan year is lost, contributions to an HSA automatically roll over each year and can earn interest, much like a traditional savings account. But these savings accounts are also attached to a variety of restrictions governing eligibility and defined "qualified medical expenses."

Confusion can arise when employees try to figure out what counts as a "qualified expense" — and what kinds of benefits might disqualify them from participating in HSAs. Many manufacturing plants, for example, operate on-site clinics that provide free or low-cost health care, such as physicals and immunizations, nonprescription pain relievers and treatments for injuries caused by work-related accidents. Does having access to these services make the employee ineligible to use an HSA?

In June, in response to employers' concerns about their ability to offer on-site health services to employees who have HSAs, the Internal Revenue Service issued guidance about what employer-sponsored medical services are allowable under the law.

In Notice 2008-59, the IRS clarified that employees who receive free or employer-subsidized health care services from an on-site medical clinic are generally eligible to participate in HSAs as long as the clinic does not provide significant medical services and the charges are below fair-market value. Taking advantage of these services will not affect an individual's HSA eligibility as long as other eligibility qualifications are met by the participant.

An example of an exception is hospital employees, who are not HSA-eligible if the facility provides free care to uninsured workers and waives deductibles and co-pays for employees enrolled in a health plan. This regulation is in place because the employer provides "significant medical intervention."

You can read the full text of IRS Notice 2008-59 on the U.S. Treasury Web site.