IRS Provides HSA Interaction Guidance

May 11, 2004 ( - The Internal Revenue Service (IRS) has provided guidance on how an individual may make contributions to a Health Savings Accounts (HSAs). while being covered by a high deductible health plan (HDHP), a Flexible Spending Arrangements (FSAs) or a Health Reimbursement Arrangements (HRAs).

To assist plan sponsors, in Revenue Ruling 2004-45 the IRS provides five scenarios in which an HSA – an IRA-type health-care account that can be established to pay for qualified medical expenses of eligible individuals – would interact with other types of health accounts.   The scenarios begin with a base interaction on how a HSA would affect an individual covered by an HDHP, a health FSA and an HRA, gradually changing the variables – such as removing FSA or HRA coverage.  

>After the scenarios are outlined, the IRS then goes through an in-depth analysis of each situation arriving at a conclusion for each.

“Although the statute does not permit individuals to contribute to an HSA while being covered by general purpose health FSAs and HRAs, the guidance provides significant flexibility to employers in structuring health reimbursements for employees,” stated Greg Jenner, Acting Assistant Secretary for Tax Policy. In particular, the ruling states that eligible individuals, who must be covered by a high deductible health plan (HDHP), may continue to contribute to an HSA while also covered by the following types of employer-provided plans that reimburse employee medical expenses:

  • limited purpose FSAs and HRAs that restrict reimbursements to certain permitted benefits such as vision, dental, or preventive care benefits;
  • suspended HRAs where the employee has elected to forgo health reimbursements for the coverage period;
  • post-deductible FSAs or HRAs that only provide reimbursements after the minimum annual deductible has been satisfied;
  • r etirement HRAs that only provide reimbursements after an employeeretires.

“We believe that the ability of employers to allow employees totemporarily suspend reimbursements from HRAs so they can contribute toan HSA without forfeiting accumulated HRA benefits provides importanttransitional relief for employers adopting high deductible healthplans with HSAs,” added Jenner.

>A copy of Revenue Ruling 2004-45 is available at