Educate your team on ways to maximize value even after the loss of contribution eligibility

Jeff Strong, is vice president of sales at Sterling Administration.
Originally published in: HR.com | March 24th, 2020

The confetti has been cleaned up and you got through February, a time where HR professionals are especially busy with helping employees to adapt to new compliance requirements, policies and even benefits plans.

However, as employees change their health care benefits plans – sometimes a legacy health savings account (HSA) can get lost in the shuffle. Maybe your company has employees who switched from a high-deductible health plan to a traditional HMO or PPO in the 2020. Perhaps you have employees who eschew a health care plan this year and instead join a spouse’s plan. This leaves behind a legacy HSA, a savings account that still belongs to an employee that is no longer eligible to contribute due to changing health insurance circumstances.

Employees may have questions as to what happens to these accounts and what to do with them. There are three main things people can do with their legacy HSA after losing eligibility: use as a savings vehicle, invest it or use the funds for qualified medical expenses. Health savings accounts almost always have an interest rate comparable to a traditional savings account.

So, if an employee had contributed to their HSA for a decade and saved up, they could see nice growth if they kept their account. And, such an account could be used in later years for qualified medical expenses – including to supplement what isn’t covered by Medicare in retirement years. Secondly, HSA account holders can opt to invest with a brokerage. The thinking here follows the previous point: investing to increase funds available in retirement age when health care needs are almost always greater and occur more frequently.

Many benefits administrators have relationships with brokerages and can offer mutual funds and ETFs to crowd a legacy HAS in order to build passive wealth accumulation. Finally, your employees should know that while they are no longer eligible to contribute to their legacy HSA, however, they can still use it for qualified medical expenses and utilize their tax advantages. Ask your benefits administrator for more information on what counts as a qualified medical expense, as more over-the-counter products and solutions are regularly added to the list.

And, of course, a legacy HSA can be “re-activated” or combined with a new HSA if an employee gets back on a high deductible health plan. So, don’t let legacy HSAs get forgotten as the 2020 can mean new health plans for many. Make sure your team is educated on ways to maximize value, even after the loss of contribution eligibility.