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?
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.
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.