This question came up at the CEBS conference where I was speaking.
“Can individual insurance that is an indemnity for a hospital stay such as AFLAC, that is paid at home, disqualify a person from an HSA? This came up yesterday. I said yes, but seemed as though something in the back of my mind said the Service (IRS/Treasury) issued something recently (grab bag HSA maybe?) saying you could have an insurance policy, and it wouldn’t affect the HSA? Can they have this deducted pre-tax along side the HSA in an employer under section 125?”
From an email sent 9-24-08
The short answer is that in general a hospital indemnity policy that pays a fixed amount per day is excluded and would not disqualify a person from HSA eligibility. This exclusion is found on the face of the HSA code section 223(c)(3)(c). However, there are some cautions that various commentators have outlined to make sure you stay within that exclusion. These are:
- Avoid specific provider benefits even if tied into hospital confinement (e.g.: private duty nursing or inpatient physician visits).
- If diagnostic or wellness benefits are to be provided (under the safe harbor for “preventive care”) be sure the services qualify under §1871 of the Social Security Act or IRS Notice 2004-23.
- Do not include outpatient benefits as part of a hospital indemnity policy’s specified diseases and illnesses.
- Avoid surgical benefits, except in connection with accidents or specified diseases or illnesses.
I hope this is helpful. Let me know if you have additional questions.
ToddTodd W. Martin Reinhart Boerner Van Deuren, s.c. 22 East Mifflin Street Madison, WI 53703 (608) 229-2244 (direct) (608) 229-2100 (fax) (608) 219-7196 (cell) tmartin(AT)reinhartlaw.com