Many employers have found value in combining a high-deductible health plan (HDHP) with a Health Savings Account (HSA). The IRS recently published two information letters — Letter 2021-0008 and Letter 2021-0014 — that provide some helpful details on the applicable rules.
Claim of mismanagement
The first letter responds to an inquiry by an HSA account holder who claimed that his employer overcontributed to his HSA. He further claimed that his account custodian mismanaged the HSA and failed to provide a corrected Form 5948-SA (“HSA, Archer MSA, or Medicare Advantage MSA Information”). The account holder:
- Wanted his employer to refund the excess contributions,
- Requested assistance in obtaining a corrected Form 5948-SA, and
- Asked whether he had rights that might protect him from HSA mismanagement.
As the IRS letter explains, employers that inadvertently contribute more than the annual maximum may — at their option — correct the error by asking the custodian to return the excess contribution to the employer. If the excess isn’t returned, it must be included as wages on the employee’s Form W-2.
The letter advises the account holder to contact the custodian to obtain a corrected Form 5948-SA. It also states that HSAs may be governed by ERISA and that the account holder should contact the Department of Labor for more information.
In providing this information, the letter offers two key reminders: 1) Under some circumstances, employers may undo contribution errors despite the usual nonforfeitability of HSA contributions, and 2) Most employers craft their HSA programs to avoid ERISA, but there are situations — usually unintended — in which ERISA can apply.
HDHP minimum deductible
The second letter responds to an inquiry about:
- The benefits that can be provided by an HDHP before the minimum annual deductible is satisfied, and
- The interaction of copay accumulator rules with the HDHP requirements.
The letter explains that HDHPs may not provide benefits — other than for preventive care — for any year until the minimum deductible for that year is satisfied. Whether care is “preventive” is determined under Internal Revenue Code Section 223; state-law mandates don’t change the outcome.
The HDHP minimum deductible may be satisfied by only actual medical expenses incurred by the covered individual. As an example, the letter points out that, if a manufacturer’s discount (including a rebate or coupon) reduces a drug’s cost from $1,000 to $600, the amount that may be credited toward the HDHP deductible is $600, not $1,000.
The second letter highlights how the HDHP minimum deductible requirement relates to the practice of prescription drug manufacturers offering financial assistance to help defray costs. Some plans may count manufacturers’ payments toward the participant’s satisfaction of the plan’s deductible and cost-sharing limit, but those payments don’t apply to the HDHP minimum deductible.
For informational purposes only
IRS information letters aren’t formal guidance. They’re issued in response to requests for general information by taxpayers and members of Congress. Nonetheless, they can provide useful knowledge to employers.