How It Works With an HRA

The fourth in a series of articles on HSAs

Employee Benefits is providing information on the Health Savings Account (HSA) that will be available to Consumer-Directed Health Plan (CDHP) members beginning Jan. 1, 2009.

An HSA is a tax-advantaged account that will replace the current Health Reimbursement Account (HRA) included with the CDHP.

What happens to HRA funds?

Retirees with a balance in their HRA as of Dec. 31, 2008, may be eligible to have the money transferred to the HSA.

In general, TVA can make a one-time, tax-free rollover of unused funds from an HRA to an HSA. The following Internal Revenue Service (IRS) rules apply to this type of transfer:

The rollover must occur before Jan. 1, 2012.
The distribution must not exceed the lesser of the balance in the HRA as of Sept. 21, 2006 (the date the HSA legislation was proposed), or as of the date of transfer (which in TVA’s situation is Dec. 31, 2008). This means that only retirees who had the HRA on Sept. 21, 2006, and through Dec. 31, 2008, are eligible to make a rollover to an HSA.
For example, if the value of an HRA was $200 on Sept. 21, 2006, and $500 on Dec. 31, 2008, only $200 (the lesser balance of the two dates) is eligible to be transferred to the HSA. On the other hand, if the balance in an HRA on Sept. 21, 2006, was $500 and $200 on Dec. 31, 2008, once again only the lesser amount of $200 (the amount on Dec. 31, 2008) will be eligible for transfer.
The rollover must be made directly from the employer to the HSA custodian, which is First Horizon.
Retirees must remain HSA eligible (that is, covered under an HSA-qualified high-deductible health plan) for a period of 12 months after the rollover takes place. Otherwise, the amount of the rollover will be treated as taxable income and subject to a 10-percent excise tax.

A rollover from an existing HRA to an HSA does not count toward the maximum annual HSA contribution. However, the amount of the rollover is not tax-deductible like regular HSA contributions.

Retirees with a transferable HRA balance will be notified.

If a retiree has an HRA balance not eligible for transfer to the HSA, the amount can be credited to a limited-purpose HRA. A limited-purpose HRA will be established with the administrator, SHPS. Retirees can file claims for reimbursement, but for limited purposes − which means funds can be used only for preventive care, dental and vision expenses.

More Q&A and information resources

Click here for answers to more HSA questions (PDF, 244 kb).

Retirees can also call the First Horizon Msaver Customer Care Center at 1-888-355-6124 or visit www.firsthorizonmsaver.com/tva. The Care Center and Web site are available 24 hours a day, seven days a week.

Watch for an upcoming article on what retirees can do to start their HSA.