Health Spending Accounts (HSAs) are designed to function similarly to insurance plans, incorporating an essential "Element of Risk." Just as you cannot purchase insurance after an event has occurred, HSAs must adhere to rules that prevent mid-year changes from undermining this principle. Here’s a detailed look at how and when plan changes can be made while maintaining compliance with the CRA guidelines.
Mid-Year Changes: Adhering to HSA Guidelines
HSAs are structured based on predicted healthcare needs for the year.
Consequently, altering plan amounts mid-year can be problematic. Such changes might signal to the CRA that the "Element of Risk" is being compromised. Therefore, it’s generally recommended to adjust plan limits only during renewal periods.
However, there are exceptions where mid-year adjustments are permissible, provided certain conditions are met. For example, transferring an employee to a new class with increased annual funding is permissible in specific cases. In such circumstances, you can choose automatic proration, where the increased funds are prorated starting from the 1st of the month when the transfer occurs, or opt for a manual balance adjustment to reflect the full increase.
Key Considerations for Mid-Year Plan Increases:
Uniformity Across Employees:
Any increase in the HSA balance must apply to all employees within the same class. Selective increases for individual employees are not allowed.
2. Justification for Increase:
Increasing the balance due to an employee's incurred expenses exceeding the set limit may be viewed as offside by the CRA. The increase cannot be to accommodate unforeseen expenses.
3. Professional Guidance:
Always consult with your corporate accountant before making any mid-year changes. Their expertise will ensure that any adjustments comply with CRA regulations and safeguard the integrity of the HSA.4. Creating Separate Classes:
For temporary or seasonal adjustments, consider creating a separate class for affected employees during the benefit year. Revert them to their original class during the next plan renewal.
4. Documenting Changes:
Maintain clear records of all employee class changes and entitlements to ensure transparency and compliance.
Navigating the rules around mid-year changes to HSAs requires a careful balance to maintain compliance with CRA guidelines. The core principle is the preservation of the "Element of Risk," ensuring that HSAs function as intended—similar to traditional insurance plans. By following the outlined considerations and seeking professional advice, you can make necessary adjustments while adhering to the CRA Rules. Questions? Reach out to support@getmyhsa.comAdditionally, consider adopting operational best practices, such as documenting all changes comprehensively, ensuring equitable adjustments across employee classes, and planning allocation schedules around renewal dates to minimize disruption. These steps not only streamline HSA management but also reinforce compliance with CRA guidelines.