Health Savings Accounts, or HSAs, are becoming a more popular way to save on healthcare expenses, with assets and investment balances estimated to top $150B and $59B by the end of 2024. If you don’t have an HSA today, do you know if you’re eligible to open one? In this article, we’ll review the HSA eligibility requirements and make them easy to understand. This is also a great reference for employers looking to offer an HSA as an employee health benefit.

If you need a refresher on how HSAs work, we recommend reading this article before continuing.

HSA Eligibility Requirements 2023

The first thing you need to be eligible for an HSA is to have a high-deductible health plan (HDHP). HDHPs can be HMOs, PPOs, indemnities, or other types of health plans, but they must meet the following criteria to definitively be HSA-qualified:

• Have a minimum deductible of $1,500 for self-only coverage, and $3,000 for family coverage
• Deductible plans must cover prescription drugs but not preventive care
• Have a maximum out-of-pocket amount of $7,500 for self-only coverage, and $15,000 for family coverage

Once you verify that you have HSA-qualified coverage, there are some other criteria you must meet to be HSA eligible. In order to be eligible to open HSA, you must NOT:

• Have other coverage that disqualifies you
• Be enrolled in Medicare
• Be enrolled in Medicaid (it doesn’t hit the deductible limit)
• Be able to be claimed as a dependent on someone else’s tax return (children can’t have their own HSAs)

Later in this article, we’ll explain what we mean by “coverage that disqualified you”. But first, we want to dispel some myths about HSA eligibility.

HSA Eligibility Myths

There are a few misconceptions about HSA eligibility we wanted to address directly. First, HSA eligibility is determined on an individual basis. If your spouse is not eligible for an HSA, that doesn’t mean that you can’t open one. We recommend going through the eligibility criteria in the previous section for each individual to determine their eligibility status.

You don’t have to be the primary HDHP policyholder to open an HSA. For example, if you’re covered by a spouse’s HDHP, you can open your own HSA as long as you meet all the eligibility criteria.

There tends to be some confusion around how income and employment impact HSA eligibility. In fact, HSA eligibility does not depend on income whatsoever, nor does an HSA account owner have to be employed. You can be eligible for an HSA even if you don’t have earned income or pay income taxes at all. Many people don’t know that HSAs don’t have to be employer-sponsored. Banks, insurance companies, and credit unions offer HSAs directly to individuals. However, if you go that route, it’s more likely that you’ll have to pay account fees.

HSA Eligibility Timing and Contributions

There are a few intricacies around HSA eligibility timing and the amount you can contribute to your HSA per year that we want to call out. If you don’t have HSA-qualified coverage on the first day of the month, you are not eligible to make a contribution for that month. To make the maximum contribution for a year (see table below for amounts), you need to be covered by HSA-qualified coverage on the first day of every month. For example, if you become qualified and open an HSA on January 5th, you are not considered HSA-eligible for the month of January. You would then be entitled to contribute 11/12 of the annual contribution limit (11/12 * $3,850 = $3,529), assuming you have a self-only HSA, are under 55, and remain eligible for the rest of the year.

The “Last Month Rule” of HSAs

December 1st is the most important date for HSA eligibility due to its implications on your annual contribution amount. If you have HSA-qualified coverage on December 1st, you can contribute up to the full annual contribution limit despite any lack of eligibility for the past 12 months. However, you must maintain coverage for a 12-month testing period for this contribution to stay valid. If you fail to do so, you pay a 10% penalty and income tax.

What is HSA Disqualifying Coverage?

As we mentioned earlier, to be eligible for an HSA, you may not have other coverage that disqualifies you. Review the table below for a comprehensive list of disqualifying coverage.

We will include the FSA and HRA exceptions that are considered HSA-compatible in the next section.

What is HSA-Compatible Medical Coverage?

The following table includes a list of health coverage that is HSA-compatible. You may be covered by any of these policies in addition to your HDHP and remain HSA eligible.

Understand HSA Eligibility to Make the Most of Your Health Coverage

HSA eligibility requirements can be complicated and confusing, but understanding them will help you maximize your ability to save on healthcare. If you open an HSA, it’s important to know what types of supplemental health coverage you can have while remaining eligible. If you don’t yet have an HSA, hopefully, this article helped you understand if you’re eligible for one.

Have questions about your eligibility to open an HSA with Thatch? Feel free to reach out here if your employer offers Thatch as a benefit and you have questions about your HSA eligibility.