Can Your Spouse Disqualify You? Company Benefits as Pillow Talk.

Yes, your spouse can disqualify you from opening and funding a Health Savings Account. Better to learn now - before you're affected.

Note: This is the third installment in our six-article series on people and entities who can disqualify you from opening and funding a Health Savings Account. In prior articles, we discussed how your employer and your insurer can compromise your Health Savings Account eligibility.

In most situations, working spouses can make independent benefits decisions without affecting the other's opportunity to fully participate in his or her company's coverage options. They simply must check with each other to ensure that they're (1) not duplicating coverage (and thus premiums) without achieving an added level of protection from risk and (2) not failing to protect themselves against a known risk because each assumed that the other would purchase medical, dental, or pet insurance.

But Health Savings Accounts present a whole new challenge that requires additional communication and coordination among couples. The good news is that Health Savings Account eligibility is determined person-by-person, so a spouse who disqualifies herself usually doesn't disqualify her spouse.

Example: Roxanne covers herself and her younger husband Gordon and their 16-year-old adopted son Alfred on her small company's only medical offering, an HSA-qualified plan. When Roxanne turns age 65, her employer's insurer requires her to enroll in Medicare, thus disqualifying her from continuing to fund a Health Savings Account. She retains the plan and remains enrolled herself so that Gordon and Alfred have coverage. Gordon isn't disqualified by her Medicare enrollment, since Medicare offers only individual coverage. He can fund a Health Savings Account up to $7,300 in 2022 (and $7,750 in 2023), plus an additional $1,000 catch-up contribution each year if he's age 55 or older.

Sometimes, however, a benefits decision made by one spouse disqualifies everyone in the family. Let's look at the most common situation.

Enrollment in a General Health FSA

A general Health FSA is the most common variation: It provides first-dollar reimbursement for all qualified medical, dental, and vision expenses, plus over-the-counter drugs, medicine, equipment, and supplies. Nearly all large employers and many smaller companies offer this benefit to employees. Workers who participate in effect gives themselves a raise by making an election and then paying for qualified expenses with their pre-tax payroll deductions. Employees don't pay federal income, federal payroll, and, if applicable, state income taxes on their elections. Employers avoid their s hare of payroll taxes as well - an offset that usually provides funding to offset fees charged by a third-party administrator (TPA) to manage the program.

Federal law comes into play in two important aspects of Health FSAs:

First, the plan automatically covers the worker and his or her spouse, tax dependents, and children to age 26. These family members don't have to be covered on the employee's medical plan or actually submit claims to the Health FSA. They're automatically covered by the plan, with no opportunity to waive coverage (as they can for a traditional medical plan).

Second, a Health FSA is governed as a medical plan under federal law. That's important because anyone who wants to open and fund a Health Savings Account can't be covered by any plan that's not HSA-qualified. A general Health FSA is disqualifying coverage because it reimburses medical expenses without imposing a deductible, as is required by all HSA-qualified plans.

When an employee who enrolls in a company's Health Savings Account program also enrolls in a general Health FSA, the employer is responsible for spotting this problem and making sure that the worker isn't covered by the Health FSA. But the company can't see through to a spouse's benefit choices with his or her employer. In this case, the employee may remain covered by his company's HSA-qualified medical plan, but he can't make or receive contributions to a Health Savings Account before the end of the spouse's general Health FSA plan year.

This disqualifying coverage applies only when the couple are married. If they're unmarried domestic partners, they're not considered spouses under federal tax law. In that case, a domestic partner's enrollment in a general Health FSA has no effect on an employee's eligibility to fund a Health Savings Account.

[Note: The spouse can enroll in a Limited-Purpose Health FSA if her company offers one, as my wife's employer did several years ago. The Limited-Purpose Health FSA reimburses dental and vision expenses only and isn't disqualifying. But companies that don’t offer a Health Savings Account program themselves don’t provide the option of a limited Health FSA.]

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Other Disqualifying Activity

Your spouse's company can design its benefits so as to disqualify both your spouse and you from opening and funding a Health Savings Account, as we noted two weeks ago, with the same mistakes that your company can use to disqualify you.

In most cases, Health Savings Account owners who fund their accounts are covered on their company's medical plan. Therefore, the spouse and/or her company aren't in a position to disqualify the employee. And when they do, that action disqualifies the spouse as well.

For example, if you are covered on your spouse's medical plan, are HSA-eligible, and are age 55 or older, you can make an annual $1,000 tax-deductible catch-up contribution to your Health Savings Account. But if your spouse's employer doesn't design the program properly, or her insurer doesn't design the medical coverage properly, you will be disqualified from making your catch-up deposit.

The Bottom Line

The problem isn't necessarily that benefits aren't exciting pillow talk -though they're not. The bigger issue is that employees spend little time looking at their company benefits during open enrollment to maximize their protection for the dollars that they spend. When they're married, they may compare their respective employers' medical, dental, vision, and other coverage to determine which offers the better value (though many don't and instead just choose the benefits based on, for example, who earns more or who carries them now).

Health Savings Accounts introduce a new level of analysis. It's not about just about making sure couples don't duplicate coverage (and thus pay double premiums without a corresponding benefit). If one is funding a Health Savings Account, it's critical that the couple understand the situations in which the spouse's benefits choice may slam shut the contribution door on their Health Savings Account for up to 12 months.

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