New regs add flexibility to Health Savings Accounts

One way to mitigate today's high health care costs is to provide employees a lower-cost high-deductible health plan (HDHP) and the opportunity to open a Health Savings Account (HSA). If you've joined the many businesses -construction and otherwise -offering these arrangements, you'll be happy to know that new federal regulations add considerable flexibility.

Plan basics

HSAs have gained popularity of late for good reason. Employees enjoy the ability to pay qualifying medical expenses with pretax dollars while employers usually reduce their health care insurance premiums by switching to an HDHP.

For 2007, an HDHP is defined as a plan with an annual deductible of at least $1,100 for individual coverage and $2,200 for family coverage, plus an annual out-of-pocket limit of no more than $5,500 for individual coverage and $11,000 for family coverage.

To qualify, an employee must be covered by an HDHP and generally must not be covered by any non-HDHP health insurance. The maximum contribution for 2007 is the lesser of the HDHP's annual deductible or $2,850 for individuals and $5,650 for families. Additional "catch-up" contributions are allowed for those 55 and older.

Comparability changes

The new regulations regarding HSAs bring good news. For starters, they may help you avoid the excise tax that applies to contributions you make to employees' HSAs that are not comparable within categories of employees.

To be considered comparable, a contribution must be either the same dollar amount or the same percentage of the deductible for comparable employees -those that are in the same category (such as full-time, part-time or former employees) and who have the same health plan coverage.

As of Jan. 1, 2007, HSA contributions for union employees are not subject to the comparability requirement. This means your contributions to nonunion employees are not affected by whether you contribute to HSAs for employees covered by collective bargaining agreements.

In addition, you now may make different comparable contributions based on categories of family coverage. The new regulations recognize three family coverage options: self-plus-one, self-plus-two, and self-plus-three or more.

Your contributions to the self-plus-two category cannot be less than your self-plus-one contributions, and your self-plus-three or more contributions must be no lower than those to self-plus-two accounts.

Cafeteria plan contributions

Finally, but perhaps most significantly, the new regulations clarify the rules governing contributions made through cafeteria plans (employee benefit packages that allow participants to choose from various group programs that best meet their specific needs).

Comparability requirements do not apply to cafeteria plan contributions, which affords you much more flexibility in designing your coverage requirements. To qualify, however, you must have a written cafeteria plan that details an employee's option to make HSA contributions through pretax salary reductions.

If your employees may receive cash instead of an HSA contribution, your contributions are not subject to comparability rules -whether the participant opts for the cash or not. This means you may design plans that require you to match employee contributions or that make your contributions conditional on factors such as participation in health screenings or wellness programs.

Fairly complicated

As you can see, these new final regulations are fairly complicated. To determine whether and how they may affect your employees' HSAs, contact us.

Russ Panks, CCFP, specializes in construction and real estate accounting for Kaufman, Rossin & Co. He can be reached at rpanks@kaufmanrossin.com.