Do Two Contracts Mean Two Contributions Limits? It Depends.

Couples have three ways of covering themselves and their families. But their contribution limits aren't based on the number of contracts.

Most married couples, particularly those who cover additional dependents, enroll in a family medical plan to cover all family members on a single contract. It's typically the easiest way to manage the family's coverage. But not always. Federal law, employer decisions, and projected utilization all play a role in how the family ultimately coverage itself against catastrophic medical loss.

Let's examine three scenarios and determine the maximum Health Savings Account contributions under each.

One Family Contract

In this scenario, the family can contribute up to the statutory maximum annual contribution for a family contract, which is $7,200 in 2021. In most cases, the subscriber funds the account through pre-tax payroll deductions. This approach gives the family the greatest bang for the buck because funds are deposited before income taxes are applied, plus federal payroll taxes aren't deducted.

In contrast, when the account is funded with personal contributions, the owner deposits post-tax dollars. She then deducts the contribution on her personal income tax return, which, in effect, refunds the federal and state income taxes paid on the money when it was earned. But payroll taxes aren't refunded. Thus, the tax benefit is delayed, and the account owner doesn't realize the instant 7.65% return (1.45% on incomes greater than $142,800).

A family contract is the norm for couples without dependents when the employer offers a two-person (or employee+spouse) contract tier. The premium is typically twice the single rate and well below the family tier.

There are some situations in which married people may want the non-subscriber to fund part of or all the family contribution limit into her own account. Here are several:

• The subscriber is a working senior enrolled in Medicare. He's not eligible to contribute. But his spouse is covered on the plan and isn't enrolled in Medicare. She can fund a Health Savings Account to the family limit via personal after-tax contributions. In fact, if the husband is the only one of them who works, he can fund her account with after-tax contributions (the tax deduction goes to her, regardless of which one of them provides funding) and they can deduct the deposits on their joint tax return.
• The subscriber is younger than the employee. Medicare premiums are qualified expenses for tax-free distributions from a Health Savings Account. But those withdrawals aren't tax-free until the account owner turns age 65. If the non-owner spouse is older, it makes sense for her to open and fund her own account so that she can pay her Medicare premiums until her employee-spouse turns age 65. The older spouse may have already opened an account to make the annual catch-up contribution beginning at age 55. The couple can allocate a portion of the $7,200 family limit to that account as well. They won't receive the break in payroll taxes that pre-tax payroll contributions offer, but they enjoy tax-free distributions for the older spouse's Medicare premiums.

Two Self-Only Contracts

Premiums for family contracts are usually more than twice the level of self-only coverage. When an employer doesn't offer a two-person tier, couples often each enroll in a self-only (or individual) plan to reduce premiums. This approach also reduces deductible expenses if one is very healthy and the other has a chronic condition.

In this case, if both plans are HSA-qualified and each spouse meets eligibility requirements, each can fund his or her Health Savings Account up to the statutory limit ($3,600 in 2021), plus the $1,000 catch-up contribution for each who is age 55 or older.

The family enjoys the same total contribution limit in 2021. They split the contributions between the two accounts. They can still reimburse each other's qualified expenses tax-free, so they don't lose anything by having two accounts (except that they must manage two accounts and perhaps pay two monthly admin fees).

This plan backfires if the couple wants to maximize contributions to a Health Savings Account and only one employer offers an HSA-qualified option. In that case, the family must decide whether it's better to pay the higher family premium to contribute the extra $3,600 (or $4,600 if the spouse is age 55 or older), or simply accept the lower contribution limit in exchange for lower total premiums and perhaps a reduction in out-of-pocket financial responsibility.

A Family Contract and a Self-Only Contract

This arrangement is unusual. But a provision of the Affordable Care Act of 2010 makes it more likely than it was before then. Under the ACA, employer coverage must be extended to dependent children. But companies can refuse to enroll spouses who are eligible for coverage through their employers. In this case, the family must pay premiums for two policies. (Note: An obvious way around this situation is to see whether the other spouse's company doesn't have this policy, so that they can switch coverage from one employer to the other and remain on family coverage.)

If both plans are HSA-eligible and both spouses are eligible to fund a Health Savings Account, what is their contribution limit? Is it $7,200 plus $3,600? Are they bound to the $7,200? Are they limited to $3,600 each?

Here's the answer: The statutory maximum contribution for a family contract is, in fact, a family limit. Spouses can't contribute more than $7,200 total, whether they're covered by two self-only plans, a self-only and a family plan, or two family plans.

In this scenario, the spouse with the self-only coverage can contribute up to $3,600 to her Health Savings Account. The other spouse can contribute the balance of the $7,200 annual limit for 2021. Each can deposit an additional $1,000 if he or she is age 55 or older.

The Bottom Line

The statutory maximum annual family contribution limit is the ceiling for married spouses, regardless of their contract tiers (self-only, employee+spouse, family). They can't contribute more if they're married. Given this limitation, their focus should be on the optimal coverage structure (considering premiums, out-of-pocket responsibility, and projected utilization) to minimize the costs associated with that contribution limit.

[Note: The discussion above applies to married couples only. Domestic partners and ex-spouses - as well as children who are no longer dependents but remain covered on a parent's family plan - may enjoy higher contribution limits.]

I'm director of strategy and compliance at Benefit Strategies, LLC, an administrator of Health Savings Accounts and reimbursement accounts. You can read and subscribe to my Health Savings Account GPS blog here and read my weekly HSA Monday Mythbuster and HSA Wednesday Wisdom columns and occasional Healthcare Update column published on LinkedIn. My book, HSAs: The Tax-Perfect Retirement Account, is the definitive guide to navigating the intersection of Health Savings Accounts, retirement planning, and Medicare. It's available in paperback and e-book at Amazon.

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