Medical plans with health savings accounts

What is a health savings account (HSA)?

An HSA is a tax-exempt account, owned by the employee, and funded by employer and employee contributions. The money is the employee's, even if they change health plans, get a new job, or retire.

Employees can use the HSA funds to pay for IRS qualified out-of-pocket medical expenses, like deductibles, copays, and coinsurance for themselves and their IRS tax dependents. An HSA balance can grow over the years, earn interest tax free, and build savings that individuals can use to pay for health care as needed, or pay for Medicare Part B premiums. Learn more about qualifying expenses in The Complete HSA Guidebook.

An HSA is opened by HealthEquity, the HSA administrator, for all employees enrolled in a PEBB consumer-directed health plan (CDHP).

What is a consumer-directed health plan (CDHP)?

A CDHP is a medical plan that qualifies for a health savings account (HSA) and offers lower premiums but comes with a higher combined medical and prescription deductible and out-of-pocket limit than most traditional health plans.

The PEBB Program offers the following CDHPs with health savings accounts:

• Kaiser Foundation Health Plan of the Northwest CDHP
• Kaiser Foundation Health Plan of Washington CDHP
• Uniform Medical Plan CDHP

Enrolling in a CDHP with an HSA

Employees must ensure that they meet the IRS eligibility requirements to enroll in a CDHP with an HSA. If an employee elects to enroll in a CDHP plan with an HSA but is not eligible, they may be liable for taxes and incur tax penalties.

When an employee enrolls in a CDHP, HealthEquity opens a health savings account and mails a member welcome kit to the employee. The employee owns the HSA and all funds that are deposited into it and is responsible for tracking and managing their HSA.

Can employees enrolled in a CDHP with an HSA also enroll in an FSA or the DCAP?

Employees enrolled in a CDHP with an HSA may also enroll in:

• A Limited Purpose Flexible Spending Arrangement (FSA) (funds used only for vision and dental care), and/or
• The Dependent Care Assistance Program (DCAP) in the same plan year.

An employee cannot enroll in both a CDHP with an HSA and a Medical FSA at the same time.

The FSA and DCAP benefits provided by the PEBB Program are only available to eligible employees of state agencies and institutions of higher education.

HSA contributions

Health savings accounts (HSAs) are funded by employer and employee contributions.

Employer contribution

The employer contribution is taken from the total rate paid by the employer to the PEBB Program for each eligible employee enrolled in a CDHP and deposited into the HSAs at the end of each month by the PEBB Program. The SmartHealth wellness incentive, if earned, is deposited by the end of January of the following year.

The entire annual HSA amount is not available on January 1.

Once the employer contribution has been deposited, the funds belong to the employee and can only be retrieved if the employee was never eligible to be enrolled in an HSA. Contact Outreach & Training through HCA Support if that situation arises.

The amount of the employer contribution is determined by whether the employee is enrolled in the CDHP alone or has one or more dependents enrolled with them. Employees who enroll midyear will only receive the employer contribution for the months in which they are enrolled in the CDHP.

Employee contribution

Employees can add their own tax-free contributions to their HSA, up to the IRS annual limit.

The annual maximum contribution amount is increasing for 2025: $4,300 for employee only. $8,550 for employee with one or more dependents.

*Employees age 55 or older may add an additional $1,000 per year to the HSA.

Employees are responsible for managing their own HSA accounts and must ensure that the total of all contributions do not exceed the IRS annual limit, which includes the employer and employee contributions and the $125 SmartHealth wellness incentive, if earned.

How can employees contribute to their HSA?

Employees enrolled in a CDHP may contribute money to their HSA in either of two ways:

• Contribute pretax via payroll deduction (if the employer offers this option), or
• Post tax using direct deposit.
  • The employee must contact HealthEquity to set up direct deposit to their HSA.

Funds are available to the employee as they are deposited.

Employee contributions through pretax payroll deduction

To request to contribute through payroll deduction, employees must complete and submit to their employer the current year’s Employee Authorization for Payroll Deduction to HSA form (2024) (2025).

State agencies and institutions of higher education

• State agencies and higher ed offer discretionary payroll deductions for the HSA.

PEBB participating employer groups

• Employer groups who wish to make payroll deductions available must be capable of making an Electronic Fund Transfer (EFT) using routing information and health savings account numbers.
  • The payroll deduction option can be initiated at any time during the year. Benefits administrators should contact Lana Pech at HealthEquity for details.
  • To request employee health savings account and routing numbers, contact Outreach & Training through the HCA Support. Include the employee's full name and SSN in your request.

Health Equity fees related to HSAs

• Monthly maintenance fee paid by the Health Care Authority (HCA) for all employees enrolled in the UMP High Deductible with an HSA.
• Monthly maintenance fee of $3.95, paid by the employee, if they are no longer enrolled in the HDHP, but only if the HSA balance falls below $2,500.
• Monthly fee of $1.00, paid by employees who receive paper statements. There is no fee for electronic statements.
• Reimbursement fee of $2.00, paid by employees who receive a paper check for the reimbursement of qualifying expenses. There is no fee for reimbursements paid using electronic fund transfer.

HSA guidance for all employers

• For newly eligible employees who select the CDHP with an HSA within their 31-day eligibility window, payroll deductions begin the same day as the employee’s coverage effective date.
• Employers must allow employees to change their contribution at least once a month (12 times per year) per IRS regulations. Changes made to HSA contributions via payroll deduction must be prospective and made before the employee’s salary is available.
• For employers that make VEBA contributions to active employees, you will need to determine if the VEBA account can be made limited purpose. Employees who choose the CDHP will then be limited in their use of VEBA dollars to non-medical purposes only (e.g., dental, vision).
• Employers do not need to do anything related to the employer contribution made to the HSA each month. Once premium payments have been made to the Health Care Authority, the PEBB Program will pull funds from the premium payment to make the employer contribution to the HSA.
• The reconciliation of payroll deductions made for an employee’s HSA contribution is between the employer and HealthEquity. Errors in employee payroll deductions into the HSA can be corrected by adjusting future HSA payroll deductions.
• Given the IRS’s ruling that premium based contributions deposited into the HSA are essentially irretrievable in the event of an erroneous deposit, once an eligible employee has enrolled in the CDHP with the HSA it will be very important to stay current on entering enrollment changes in the insurance system or alerting PEBB Outreach & Training (if we enter enrollment for you) of situations where the employer contribution to the HSA should be reduced or discontinued (e.g. separations from employment, loss of benefit eligibility, all dependents are removed from the account). The critical date for entering the change in the insurance system or alerting PEBB is typically before the 23rd of the month.
• Payroll deductions for the HSA must be discontinued once an employee is no longer enrolled in the CDHP.