The HR Manager for a client company called this week asking if an employee could go to the bank and open Health Savings Account (HSA). The short answer is yes. But this situation is like one of your children asking if cats are allergic to paint thinner. The best response is not the answer you give but the questions you ask. Follow up questions regarding the employee opening a HSA account at a bank painted a bigger picture. The employee in question had come to the HR Manager requesting that money be withheld out of the employee’s check, on a pre-tax basis, to be deposited into a new HSA account at the local bank. The significance of this scenario involves two major issues. One is the lack of understanding regarding HSA accounts and associated requirements to qualify for the state and federal tax benefits. The second is the misrepresentation by banks promoting and selling HSA accounts.

There are two key parts to fully qualify for tax benefits at state and federal level for an HSA. One is the actual HSA account where contributions are deposited to be later withdrawn for medical expenses. Often this is an account at the bank. Some banks are aggressively advertising HSA accounts. The second part is the High Deductible Health Plan (HDHP) that must meet specific plan benefit guidelines. The catch, being that if the health insurance you are covered under doesn’t meet the HDHP guidelines, the deposits into the HSA account do not qualify for pre-tax status. To get both state and federal tax benefits with a HSA account your health insurance plan must meet the HDHP guidelines. The majority of individual health insurance policies and employer sponsored group health plans do not meet the HDHP guidelines.

In the case above the employee can open a HSA account at his bank. He can deposit money in the HSA account. He cannot deduct the HSA deposits on his federal tax return since his employer sponsored health insurance is not an HSA qualified HDHP plan.

Watch for a coming blog reporting on our follow up research with banks marketing HSA accounts.

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