Q: We are entertaining the idea of changing our health care coverage to a HSA (Health Saving Account)-compatible policy. Presently our three pastors receive a designated amount of medical allowances each year to help them cover the costs of out-of-pocket moneies that go toward their deductible. Is it legal to still set aside a designated medical allowance within our budget if we go to a HSA-compatible policy?
What are ‘Health Savings Accounts’ ?
Health Saving Accounts (HSA’s) are medical reimbursement accounts that are regulated through the IRS. An HSA is generally only permitted in conjunction with a high deductible health plan. So, depending on how you use the medical allowance, it may impact whether it is legally permitted.
I’m assuming with your current plan, the pastoral staff submits receipts for medical expenses and then is reimbursed up to a designated amount.
When you switch to a high deductible plan, it makes sense to take the designated money and deposit it into their HSA account. This is legal as long as all of the pastors are part of a high deductible health plan. In other words, they don’t have a traditional health plan with co-pays somewhere else. Also beware that the IRS sets limits on how much may be contributed into an HSA account. The IRS changes these limits each year. The limit includes both the employer’s contribution as well as any employee contribution. This approach is legally permissible.
You may also be asking whether you can have a medical allowance in addition to a health savings account. This most often occurs when either one of the pastors does not utilize the church’s insurance plan. Or it occurs when the church wants to cover expenses in excess of the HSA amount or items not included under health deductibles (such as contacts or dental work). This approach faces more legal hurdles and you will need to be careful that it doesn’t violate IRS guidelines.
Visit the following website for additional clarification: https://www.irs.gov/government-entities/federal-state-local-governments/where-can-i-learn-more-about-health-savings-accounts-hsa-and-health-reimbursement-arrangements-hra.
