Noteboom The Law Firm

IRS Negates Veterans’ Ability To Use Health Savings Accounts

October 28, 2010 - The end of the year is an important time for insurance companies. This is the time of the year where insurance plans begin their open enrollment periods. This process covers thousands of companies and tens of thousands of employees, their spouses, their partners, and their families.

The recently passed health care plan is forcing companies to cost-shift the expense of benefits offered to their employees, however. This means many companies are making their only offerings high deductible health care plans (HDHP), with the average annual deductibles being either $1,500 or $3,000.

Because of the financial stress this places on many employees, companies are also offering health savings accounts (HSAs) to offset the costs. Employers contribute some of the funds to these accounts and employees are given the choice to add pre-tax contributions as well. This sounds like a great idea, unless you're a veterans utilizing VA health care.

Only employees with HDHPs can use HSAs. While unintended, the IRS made a ruling in 2004 denying veterans the ability to use HSAs with employer contributions. All veterans using VA health care within 3 months are barred from contributing to, or withdrawing from, HSAs containing employer contributions. This is despite the VA's health care being used to treat an injury or illness brought on by being in combat. 

Additionally, anyone using TRICARE or a VA hospital, to include veterans, are precluded from using HSAs because they do not meet minimum established requirements for deductible contributions. Essentially, veterans in the private sector work force cannot touch the money their non-veterans co-employees can freely use.

The consequence of the 2004 IRS ruling was not intended. Members of Congress must be pushed to ensure this ruling is adjusted to accommodate America's veterans.