How VA Medical Benefits Can Impact HSA Eligibility

 March 11 2019     Diane Cross

Because Health Savings Accounts (HSAs) provide such significant tax advantages, the IRS imposes strict eligibility requirements.  Generally, to be eligible for an HSA, an individual must:

  • Be enrolled in a High Deductible Health Plan (HDHP);
  • Not be covered by any disqualifying coverage;
  • Not be enrolled in Medicare; and
  • Not be eligible to be claimed as a dependent on another person’s tax return 

We often receive a good deal of questions regarding what is considered disqualifying coverage.  IRS guidance provides that an individual generally cannot have health coverage other than HDHP to be HSA-eligible, with limited exceptions.  For example, coverage under a general-purpose Health Flexible Spending Account (FSA) or Health Reimbursement Arrangement (HRA) will cause an individual to be HSA-ineligible.  There is other coverage that can (but does not always) prevent HSA eligibility, such as VA medical benefits.  That said, understanding how VA medical benefits could impact an otherwise HSA-eligible individual’s ability to contribute to his or her HSA is important.

Because benefits received through the Department of Veteran Affairs (VA) is not an HDHP, VA coverage can create eligibility concerns for otherwise HSA-eligible individuals. However, VA medical benefits do not always interfere with HSA eligibility.  In fact, an otherwise HSA-eligible individual can make HSA contributions for a given month if he or she did not actually receive VA medical benefits during the preceding three months.  The general rule is that an individual is ineligible to make HSA contributions for a month if he or she has received VA medical benefits at any time during the previous three months.  

For example, Lucy receives VA medical benefits in February.  This makes her ineligible to contribute to her HSA for March, April, and May.  Assuming she did not receive VA services during March through May, she can contribute again to her HSA in June.

However, preventative care benefits from the VA will not disqualify an otherwise HSA-eligible individual. In addition, VA medical services or hospital care “for a service connected disability” will not impact an individual’s ability to make HSA contributions.  As a practical matter, identifying VA services that are "for a service connected disability" can be administratively complex. To ease the burden, the IRS provides a “rule of administrative simplification” where any hospital care or medical services received from the VA by a veteran with a disability rating from the VA may be disregarded for purposes of determining eligibility to make HSA contributions.  That said, if medical services from the VA are for a veteran with a disability rating, such services will not impact the individual's ability to contribute to an HSA (assuming s/he is otherwise eligible). 

Determining whether VA medical benefits impact an individual’s HSA eligibility depends on the timing of VA services and the specific services rendered.  Ultimately, the individual HSA account holder is responsible to make such determination.  For questions concerning VA medical benefits and HSA eligibility, or HSA eligibility generally, contact your HORAN representative.