How does this carryover option impact my Health Savings Account (HSA), Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA) interaction?

If you are covered by a traditional, general-purpose FSA or HRA, you are not eligible to contribute to a health savings account (HSA). Below we discuss the impact of the Grace Period and carryover on the HSA’s eligibility. 

Grace Period Impact on HSA Eligibility: A participant with a general-purpose FSA that contains a grace period and has a year-end balance is ineligible for HSA contributions until the first calendar month after the grace period ends. The same is true for the participant’s spouse, if the spouse’s medical expenses are eligible for reimbursement from the general-purpose Health Care FSA.  

Carryover Impact on HSA Eligibility: The adverse effect of members not being able to enroll in an HSA if they have funds remaining at the end of the Plan Year can be avoided if the plan allows employees to decline or waive their carryovers prior to the beginning of the next Plan Year. An employee who declines or waives a general-purpose Health Care FSA carryover under the plan's terms may contribute to an HSA during the next Plan Year if he or she is otherwise HSA-eligible. Another way that employers can help employees avoid the adverse effect on HSA eligibility of a general-purpose Health Care FSA carryover is to amend their cafeteria plans to allow or require that the unused amounts be carried over to any of the following HSA-compatible Health Care FSAs (i.e. a limited-purpose FSA).