User:Soon2BXProgrammer/HSA veterans benefits

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One of the basic HSA (Health Savings Account) qualifying rules is: "You have no other health coverage (except for dental, vision, and other specific exceptions)." This rule has been an issue for those receiving health care benefits from the Department of Veterans Affairs (also known as the "VA"). Congress, the IRS, and the Department of Veterans Affairs have cooperated over time to resolve some of the complexity of having a High deductible health plan / Health savings account and VA Health Care.

History & Legislation
Originally, if one received medical care from the VA, it was treated as disqualifying coverage. This has evolved over time.

=== Internal Revenue Bulletin: 2004-33, Notice 2004-50, Q&A 5: ===

Q-5. If an otherwise eligible individual under section 223(c)(1) is eligible for medical benefits through the Department of Veterans Affairs (VA), may he or she contribute to an HSA?

A-5. An otherwise eligible individual who is eligible to receive VA medical benefits, but who has not actually received such benefits during the preceding three months**, is an eligible individual under section 223(c)(1). An individual is not eligible to make HSA contributions for any month, however, if the individual has received medical benefits from the VA at any time during the previous three months**.

IRS Notice 2008-59, Q&A-9:
Q-9. Is an individual an eligible individual if he or she is eligible for medical benefits through the Department of Veterans Affairs (VA) but only receives medical care that is disregarded coverage or preventive care from the VA and is otherwise an eligible individual?

A-9. Yes. Although an individual actually receiving medical benefits from the VA at any time in the previous three months** is generally not an eligible individual, this rule does not apply if the medical benefits consist solely of disregarded coverage or preventive care.

=== H.R. 3236 - Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Title IV, Section 4007: ===

"(Sec. 4007) Amends the Internal Revenue Code to...treat a veteran receiving hospital care or medical services for a service-connected disability as not disqualified from participating in or contributing to a tax-preferred health savings account."

IRS Notice 2015-87, Q&A 20:
Question 20: ... How does § 4007(b) of the Surface Transportation Act affect the prior guidance on the interaction of the receipt of VA health care and eligibility to contribute to an HSA?

Answer 20: ... Consequently, as a rule of administrative simplification, for purposes of this rule, any hospital care or medical services received from the VA by a veteran who has a disability rating from the VA may be considered to be hospital care or medical services under a law administered by the Secretary of Veterans Affairs for service-connected disability.

Veterans with a service connected disability
VA healthcare benefits can be used without any restrictions on making HSA contributions. VA is required, by law, to bill private health insurance providers for medical care, supplies and prescriptions provided for treatment of Veterans’ nonservice-connected conditions.

This means a veteran can use their VA healthcare benefit for all healthcare and the VA will bill the private insurance HDHP. The HDHP will then apply these costs to the veterans deductible and out of pocket costs. Any costs the insurance says are the member's responsibility, the VA will waive.

This can be beneficial for the veteran if they or their family members on the HDHP plan need to obtain care using the private insurance, because the VA care effectively acts as a reduction in the deductible without any out of pocket costs. The veteran might still be responsible for VA copays depending on their VA Priority Group.

Veterans without a service connected disability
VA healthcare can be used for preventative healthcare without impacting the HSA eligibility. If VA healthcare is used for care other than preventative, then HSA contributions are subject to the 3 month rule.

One work around for the lack of HSA eligibility for the veteran, is if they are married, their spouse's eligibility for an HSA is not impacted by this test. Therefore, their spouse could make a full family HSA contribution.

One issue would be is if the veteran's (who is receiving healthcare from the VA) employer provides free money into the HSA, they might need to decline the employer money.

Complications
Due to VA health care benefits for disabled veterans being a very small subset of the population, most HR/benefits offices do not understand this exception to the general rule for service connected veterans. Most of the time, it is up to the employee to certify they are eligible to have an HSA when they have selected an HDHP, and most lists do not include this scenario as one that is allowed.