A few months before separating from the Navy in August 2012 I began looking into whether or not I would be eligible to open up a Health Savings Account or HSA for short. This took a lot of in-depth research and many, many hours searching for the answer.
To find my answer I first searched Google, then I turned to my accountant, and then I turned to the owner of a company that specializes in helping people find insurance companies that offer high deductible health plans that meet the requirements for an HSA.
Ultimately, I had to resort calling the IRS themselves and wait on hold for 90 minutes to get the answer. Well, I got the answer and now I’m going to share it with you.
What’s The Answer?
It depends.
As with all things having to do with taxes it comes down to your specific situation. More specifically it depends on if you are a veteran who got out before retiring or if you are a veteran who retired and is still covered by Tricare.
If you retired from the military and you have Tricare coverage then this automatically disqualifies you from opening up a HSA. Since Tricare is funded by the government they are not going to let you have access to Tricare and then open a Health Savings Account and take a tax deduction for the contributions made into the savings. It seems that as it relates to HSAs, the government doesn’t want people “double-dipping”.
If you are wondering if you can choose to drop your Tricare coverage that way you can open up a HSA the answer is no you cannot. Tricare is written into law and by law you are covered by Tricare. It would take an act congress to change the laws to allow you to drop your Tricare coverage and I don’t see that happening any time soon.
However, there is always the possibility for the rules of HSAs to change. Even if you are not eligible for an HSA now, it might be worth it to keep track of HSA rules on a yearly basis in case they change to your favor.
What If I’m a Veteran Who Didn’t Retire And Am Not Covered By Tricare
If you are a veteran who didn’t retire and is not covered by Tricare, then you may very well be eligible to open up a health savings account. To do so you would have to be covered by an eligible high deductible health plan with no other insurance coverage.
Update: Relatively recent changes were made to the VA hospitals’ policies on the use of High Deductible Health plans and being able to use HSA’s to pay for care. The VA will allow you to pay your copayment through a HSA. They will also charge a High Deductible Health Plan for charges incurred for non-service connected disabilities. On the following link you can find more information using HSAs at the VA. I have striked through the paragraphs that now contain inaccurate information.
If you do decide to get high deductible health plan, know that you won’t be able to use it to pay for treatment you get at a VA hospital. VA hospitals do not accept high deductible health plans because they don’t meet the deductible requirements. Also, high deductible health plans usually are linked to HSAs.
You may be thinking that you don’t have Tricare, so you should be able to use your HSA to pay for VA hospital costs. Well this is very similar to the previous section. Since the VA is funded by the government, they are not going to let you use a facility funded by the government and then turn around and let you pay for those services with money that you have taken a tax deduction on.
Now just because you use the VA hospital doesn’t mean you can’t have an HSA, you just can’t use the HSA to pay for services at the VA hospital. You would have to pay those expenses out of pocket.
If you do use the VA hospital you aren’t eligible to make contributions to your HSAs for three months, unless the treatment was for preventive care(Thank you B. Mike Weimer for reminding me of this in the comments.)
Assuming the treatment is NOT preventive in nature this does not mean you can contribute the full amount in one lump sum and then you are free to use the VA hospital whenever you want to. Let’s say you visit the VA hospital on January 1st, provided that you didn’t use their services again that year you would only be able to contribute 9/12 of the annual HSA contribution limit.
If you used the VA hospital January 1st and July 1st, then you would only be able to contribute 6/12(one-half) of the annual HSA contribution limit. They key point to take away from this is that if you do use the VA hospital while having an HSA schedule your visits as close together as possible so you can maximize your HSA contributions.
It Gets Even More Confusing
Now if I haven’t confused you already, I might confuse you right now. Let’s say you are a veteran with out Tricare coverage and you have an eligible High Deductible Health Plan and open up an HSA. Let’s also assume that you contribute money to this HSA for a couple of years before deciding to go back into the military.
Now you’re covered by Tricare again. What happens to the money in your HSA?
The answer to this is that it still is your money and you can still invest all of your prior contributions inside your HSA how you see fit. However, you will no longer meet the eligibility requirements to make annual contributions.
Final Thoughts
Your situation might be slightly different than mine. As a result, don’t take this post as gospel. I would highly recommend that you call up the IRS yourself and ask them about your personal situation. The IRS are the only people that will be able to give you the correct answer(even they may be wrong sometimes.)
Your boss, coworkers, the VA, Tricare, or your employer are all likely to be ill-informed and potentially give you the wrong information. Furthermore, the rules for HSAs can change from year to year. Like I mentioned earlier if you are ineligible for one now you may be eligible in the future.
I hope I have saved you countless hours by typing this information up. If you have any comments, questions or need clarification on anything just let me know in the comments and I will be sure to reply to them.
Hi Thomas,
I have been dealing with a similar situation. I am a disabled Vet, rated at 10%. My employer offers a high deductible insurance plan which includes an HSA. In researching this, I have come across some updated documents which might be of interest to you:
http://www.va.gov/CBO/cbo/cpacnews.asp
http://www1.va.gov/CBO/cbo/cpac/docs/fs_veterans_02.pdf
That said, I am now more confused than ever.
Hi Debbie,
Thank you for sharing those documents with me. It’s interesting to find out that the VA hospital changed their policy with regards to accepting payments from high deductible health plans and health savings plans.
What specifically are you confused about?
Thomas
Thank you so much for your post! I wish this had turned up at the top of my google search; it would have saved me a lot of time. My employer said that you couldn’t receive VA benefits and enroll in an HSA, but I guess you just can’t be seen at a VA clinic or hospital. It’s OK to get disability from the VA.
Hi Lynn,
You are allowed to go to the VA hospital/clinic, but if you use the VA hospital you can’t contribute to your HSA for a period of two months after your visit. That would mean if you visit the VA hospital one time throughout the year you would be limited to 10/12 or 5/6 of the maximum contribution amount for the year.
After I wrote this post the VA made some changes. It used to be that they wouldn’t accept payments from a High Deductible Health Plan or a Health Savings Account. However, now they do. Debbie in her comment above brought this change to my attention. I talk about the VA now accepting payments from HSAs and HDHPs here:
http://makelegitmoneyonlinenow.com/496/can-you-use-an-hsa-account-at-the-va/
If you are covered by any type of Tricare plan(Tricare prime, Tricare standard, Tricare extra, etc.) you won’t be able to open up a Health Savings Account since Tricare counts as other medical coverage and has a low-deductible instead of a high deductible both of which disqualify you from opening up a Health Savings Account. I talk more about this here:
http://makelegitmoneyonlinenow.com/488/if-i-have-tricare-can-i-open-an-hsa/
As far as I’ve been able to find, getting disability from the VA doesn’t disqualify you from being able to open up an HSA as long as you have an high deductible health plan that meets the IRS requirements. Having Tricare does disqualify you from being able to open an HSA.
Finally, I wanted to clear up some terminology. I noticed that you wrote “enroll in an HSA”. You enroll in a High Deductible Health plan(HDHP), if the the HDHP meets the IRS requirements you are able to open an HSA and contribute money to it.
Thank you for your comment and glad I could help. 🙂
Thomas
What if I am a retired vet on Tricare, and my wife has a choice to select open an HSA?
Hi Rich,
This would depend on if your wife is covered underneath your Tricare plan. My understanding is if she’s covered underneath your Tricare plan that would be considered “Other coverage” which is a disqualifying factor to qualify for an HSA. She can still get her own High Deductible Health Plan if she wanted to, but she wouldn’t be able to open or get the tax benefits of the HSA.
Here’s a post that I made on the subject that is relevant to your question:
http://makelegitmoneyonlinenow.com/488/if-i-have-tricare-can-i-open-an-hsa/
Per IRS Notice 2008-59 question #9 the IRS states that a visit to the VA hospital or clinic for preventative care does not disqualify the period after for an HSA contribution. So if care provided by the VA is considered preventative such as a regular check-up that visit will NOT cause a reduction in the amount you are allowed to contribute.
Thank, you for bringing that point up about preventive care NOT disqualifying you from making a deduction for three months. I came across that IRS bulletin in my own research, but it some how slipped my mind when I made initially created the post.
For anyone else that may be reading, here is a link to the bulletin that contains question #9 is referred to in the comment above:
http://www.irs.gov/irb/2008-29_IRB/ar11.html
I’ve edited the post to reflect that information. Also the VA has started accepting copayments from HSA and billing HDHP for non-service connected disabilities:
http://makelegitmoneyonlinenow.com/496/can-you-use-an-hsa-account-at-the-va/
I’ve been looking for two years for information about HSAs and TRICARE. I’m a retiree who does not use my TRICARE Standard because there are no in-network physicians in my immediate area. From what you say here, I can have an HDHP, but not an HSA — same for my husband.
Hi Margaret,
Yes, that is my understanding of the current rules. You’re able to have a HDHP because it’s just an insurance plan, but you won’t receive the tax benefits of the HSA. Your HDHP would become your primary insurance plan and Tricare standard would pay after your HDHP(if by chance there’s an in-network physician in your area in the future.)
If your husband is also a military retiree the same thing would also apply to him. If he wasn’t a military retiree and was just your dependent(for Tricare standard purposes) Then you might be able to take him off of your Tricare standard plan. However, I’m not sure if he has the option of disenrolling from Tricare standard because I don’t have any experience with it. Assuming he was on your plan and he could disenroll, then he would be able to open up an HSA for himself assuming his HDHP met all of the requirements.
There are other ways to deduct your medical expenses from your taxes, especially if you have a small business or are self-employed. I attended a webinar, presented by a lawyer and CPA who’s law and accounting firms I use, about 10 days ago which discussed some different ways of deducting medical expenses and one of things mentioned was a health reimbursement arrangement(HRA). The webinar was recorded and it might be worth it to you to check it out.
However, to access it you would have to pay $20. The signup page is not up to date, but once you sign up and log into the site you would be looking for the webinar titled “October 2014 – Tax and Legal SWA Webinar – HEALTH CARE SAVING OPTIONS!”. You can sign up here.
I am a disabled vet of 70% and receive medical equipment every 6 months, which would mean I could only contribute half to HSA. My employer also contributes to HSA and good luck getting them to turn on and off contributions, paperwork mess from hell. I have opted out of this HDHP plan for 4 years now, going with an HMO. The problem is that the company is pushing this god awful HDHP down our throats that one day it will be the only thing offered, I will not be able to contribute to the HSA at 100% or receive employer contributions at 100% putting me at a disadvantage to my civilian counterparts. I use to have a good HMO plan with this company, the first year I paid ZERO, that’s right zero in premiums for it. Second year for the HMO $765, Third year $1033, Fourth year $2137… I only dread what year five has to offer. The HDHP has become the better plan with employer contributions, unless you go to the hospital for a couple of days than HDHP is just bad. I just do not like the fact that employers are pushing HDHP, this will be the only option in the future and disabled vets will be pay for it. I can assure you if I get hired by another company that only has HDHP, I will make sure to call out the fact that I cannot receive employer contributions and that I will need a higher salary to offset the benefit that my civilian counterparts receive that I cannot.
Hi Disabled Vet,
That sounds like a tough situation to be in. That is a good point about asking for increased pay to compensate for an inability to receive employer contributions to your HSA. I’m not sure if you saw my reply to Margarets comment, but there are other tax-advantaged health care plans especially if you are self-employed or you have a spouse that is self-employed such as a Health Reimbursement Arrangement. There is a recorded webinar that I attended last month that discussed some different health care strategies. It’s cost $20, but you may find that it’s worth the money to check out.
Thank you for doing all of this research, it has been very helpful for many people. I do however have one more question. I have a rating of 20% and I only go to the va for service connected (under my 20%) issues and check ups. Is that considered a va benefit the would disqualify me for an hsa? Have you came across anything like this? I have been looking for awhile. Thanks
Hi Tony,
Based on all the research I’ve done, receiving disability pay does not disqualify you from opening an HSA because it wouldn’t fall under other health coverage.
Each time you go to the VA you are jnable to make a contribution to your HSA forI believe 3 months. If you visit the VA once during the year for your disability you would only be able to contribute 9/12 of the maximum contribution for the year.
If you retired from the military after 20 years of service then you would be covered under Tricare. This Tricare coverage would disqualify you from opening an HSA because it is considered Other Health Coverage. However, you could still get a high deductible health plan, you just wouldn’t be able to take advantage of the tax deductions of the HSA.
Do you know how this works if I have an FSA instead of an HSA? Is there really a difference?
Hi David,
Unfortunately, I have not researched anything in regards to FSAs and the VA. I know with FSAs(Flexible Spending Arrangements), they are use it or lose it at the end of the year. I think you have to elect a certain amount of your paycheck to go into the FSA and you get some sort of tax break on the money you put in the FSA(I think it’s like 40% on the money you contribute, don’t quote me).
I think HSAs are usually the better option if you’re eligible for one because the money stays in your account year to year. Also, any money you contribute to your HSA is an above the line deduction on your tax returns.
I am currently dealing with this. I have VA coverage, and now my employer is saying I am not eligible for my HSA because of it. I explained the 3 month rule and even showed the IRS publication, but they would not budge. If I don’t continue employer coverage, I cannot get back in at a later date, and I cannot afford the other non HSA plans offered. My question is: if I keep the HSA and don’t make any contributions (my employer will contribute money every 6 months), can I still use VA services? Do employer contributions disqualify me?
Hi Justin,
Sorry for the late reply. My answer really depends on what your situation is. If you’re retired military then you are covered by Tricare which is “Other coverage” and since Tricare is not a HDHP HSA-qualified plan you would be ineligible for contributing to an HSA. This is completely different from seeing the VA.
The 3 month rule for the VA used to be that if you went to the VA for treatment, then you wouldn’t be able to contribute to your HSA for 3 months after. This amounts to if you went to the VA once in a year you would only be able to contribute 9/12 or 75% of the annual contribution maximum for that year. There was a law that was passed that clarified things a bit. The law says that if you use the VA for treatment of service-connected disability that is not going to disqualify you from participating in or contributing to a tax-preferred health savings account. Which means the 3 month rule just got tossed out the window if you are seen for service-connected disabilities. However, I’m not sure what happens if you use the VA for treatment of a non-service connected disability. It seems like the 3-month rule might apply there?
You’re allowed to use the VA services if you keep the HSA. Employer contributions wouldn’t disqualify you from using the VA services. However, if your employer contributes to your HSA and you are not eligible to contribute to an HSA(retiree on Tricare for example), then that has the potential for tax implications should you ever be audited. If you were audited and determined to be ineligible the tax deductions that you received on your taxes for HSA contributions would be taken away and you would be charged a penalty on the money in the HSA.
With all that being said, the HDHP and the HSA are two different things. EVen if you can’t open up an HSA you are still able to have the HDHP insurance. You just wouldn’t be able to receive the tax benefits of contributing to the HSA. Finally, I’m not a CPA or anything, so you’ll want to double check anything I’ve said. Things can and often do change often, especially when it comes to individual circumstances.
Hi,
I am in the guard as a traditional member but get called up on title 10 active duty orders at least once every two years, which forces me to use tricare prime. Can I still sign up for a high deductible insurance plan with HSA through my civilian employer? Would I have to stop HSA contributions while on tricare prime?
Also, my wife has a high deductible plan with HSA through her work, would she still be able to contribute to her HSA while she is on tri care standard? Does she have the option of declining tri-care standard while I am on prime?
All of this information was very helpful!
Hi Dewana,
Glad to hear it was helpful.
Most sites generally mention that HSAs can be used for Dental care. Has anyone from the vet/retiree side looked into that? I have tricare as a retiree but there is no dental associated with that. Is the medical hdhp the only qualifier for getting an HSA, thus restrictricting those with medical coverage from using HSAs for their dental, despite it not being covered?
You are correct that you need an HDHP in order to be able to open an HSA and receive the tax benefits from your contribution. Howeve, that HDHP has to meet certain deductible requirements according to the tax code. You also have to make sure you aren’t excluded from being able to open an HSA, such as having other cocerage. Since you have other coverage which is Tricare you would not be able to open up a HSA. However, you still are able to get a HDHP if you wanted to.
I have contacted the DOL, the EBSA, TRICARE, and the IRS and cannot find anyone to confirm or deny this information. I am currently in the National Guard and have to go through TRICARE for my LOD’s. My civilian employer moved everyone to an HDHP with HSA that I couldn’t partake in because my doctors aren’t in that network. I am currently paying more in order to keep my old POS plan. This year’s enrollment, the HDHP with HSA will be the only option and I can’t find anywhere whether or not I can even partake in this because of the LOD/TRICARE situation. I also can’t find anywhere whether my employer is allowed to penalize me (charge me more) for having to obtain a different plan because I wouldn’t be eligible for the HDHP with HSA if that’s the case. Is there anything that can help me?
Thank you in advance.
The HDHP and HSA are two different things. Anyone can purchase a HDHP since it’s just insurance. In order to open up an HSA you have to meet certain requirements which one of them is having an HDHP that has a certain deductible and you are not allowed to have any other coverage. Tricare is the other coverage and isn’t an HDHP, so that disqualifies you for the HSA. In short you can get an HDHP, but not the HSA. I believe there were recent changes made concerning veteran’s and HSA’s passed in a bill(I believe it was a transportation bill, I can’t remember off the top of my head right now), but I’m not sure what those changes are.
Hi Thomas,
I understand that they’re two different things. I wanted to confirm that I wouldn’t be eligible for the HSA because of the LOD/TRICARE situation and haven’t been able to do that until now.
The only real benefit of the HDHP is the HSA and if one can’t have that…..it seems silly to me for anyone to participate in one of those health plans.
Thank you for the clarification and confirmation. It is greatly appreciated.
I’m interpreting the LOD as being a Line of Duty injury for which Tricare is paying for the medical expenses related to that, but nothing else so please correct me if I’m wrong on that.
So to beat a dead horse…you’re able to get the HDHP no matter what, even if you’re not eligible to open the HSA. Your current doctor not being in the network of the new insurance plan is pretty unfortunate, but that would be like anyone else having their employer changing insurance plan and then having their doctor no longer be in the network.
As far as the HSA, it looks like your situation pretty much slips perfectly through the cracks. It’s unique in that Tricare is only covering the medical related to the LOD and nothing else. Unfortunately, I do not know whether the IRS would consider that “Other Coverage” which would disqualify you from the HSA.
My best advice is to maybe research and find a CPA that is knowledgeable about military/veterans issues and see if they can find an answer to your question. Another option is HSAforamerica.com. You might be able to speak to one of their advisers and they might be better equipped to find you a better, more accurate answer.
Finally, you always have the option to risk it and just go with the HDHP and open up a HSA and contribute money to it. With this you run the risk that if you’re audited and the IRS determines that the Tricare coverage of your LOD to be “Other Coverage” and as a result you were in fact ineligible to open up the savings account, you would lose the tax benefits you had accrued up to that point and have to pay a penalty on the money you had contributed to the HSA.
I wish I could help you more, but I think that’s the best answer I can give you.
The bill I mention in my previous comment was the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” which is “Public Law No: 114-41 (07/31/2015)” the part applicable to Veteran’s and HSAs was Title IV, section 4007 which ammends the IRS 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.
https://www.congress.gov/bill/114th-congress/house-bill/3236
After looking it up I realize these changes aren’t really applicable to your situation.
You should be able to sign up for the HDHP, the only thing you might not be able to do is contribute money to a HSA and receive the tax benefits.
As far as not having your doctor be covered by the new plan, I’m not sure how that would work out. Is your doctor at the VA or is it a regular doctor?
I realize that this was written several years ago, but you mention the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. My question is in regards to this and it’s subsequent notice 2015-87, specifically Q&A-20, which became effective Jan 1, 2016. Most information I’ve seen concludes that any care received at the VA by a veteran with a service-connected disability will be able to make HSA regular contributions without regard to the 3 month window, but only if they have a disability rating. My insurance company’s policy is that only care related to the service-connected disability is excepted. Can you clarify if this was rescinded or direct me to someone who can help me fight my insurance company in this regard? Thanks