Question: What are the requirements for an individual to be HSA-eligible?

Short Answer: To be HSA-eligible, individuals must a) be enrolled in a HDHP, b) have no disqualifying coverage, c) not be enrolled Medicare, and d) not be able to be claimed as a dependent on someone else’s current year tax return.

General Rule: What Does it Mean to be HSA-Eligible?
Health Savings Account (HSA) eligibility has one central focus: The ability to make or receive HSA contributions. In other words, only individuals who are HSA-eligible can open and make contributions to an HSA (e.g., through the employer’s payroll or as a direct deposit) or receive contributions to an HSA (e.g., the employer contribution made available to employees enrolled in the HDHP).

• For more details: Newfront Go All the Way With HSA Guide

Individuals who are not HSA-eligible cannot make or receive HSA contributions. Where an individual or employee mistakenly makes or receives HSA contributions, those amounts will need to be reversed with a corrective distribution to avoid a potential 6% excise tax on the excess (i.e., ineligible) contributions. The employer may also be able to work with the HSA custodian directly to reverse any mistaken HSA contributions.

For more details:

• Correcting Excess HSA Contributions

• Correcting Mistaken HSA Contributions

The HSA Eligibility Requirements
Individuals must satisfy the following four requirements to be HSA-eligible (bolded items covered in this post):

1. Be covered by a qualified high deductible health plan (HDHP);

2. Have no other disqualifying health coverage;

3. Not be enrolled in any part of Medicare; and

4. Not be able to be claimed as a dependent on someone else’s current-year tax return.

HSA Eligibility Requirement #1: HDHP Coverage
The first requirement for an individual to be HSA-eligible is that the individual be covered by a high deductible health plan (HDHP), within the meaning of IRC §223(c)(2), as of the first day of the calendar month. An HDHP (by eponymous definition) has a higher deductible than typical health plans and must meet certain standards.

To qualify as an HDHP, the plan must:

1. Impose a deductible no lower than the annual statutory minimum; and

2. Provide for an out-of-pocket maximum (OOPM) that does not exceed the annual statutory limit.

The minimum deductible and maximum OOPM to qualify as a §223 HSA-compatible HDHP is inflation adjusted annually based on the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). In 2025, the minimum deductible for is $1,650 for individual coverage and $3,300 for family coverage, and the maximum out-of-pocket limit is $8,300 for individual coverage and $16,600 for family coverage.

• For more details: The 2025 HSA and HDHP Annual Limits

Any embedded deductible (i.e., an individual, lower deductible inside a family deductible) cannot be lower than the minimum family coverage deductible. For HDHP purposes, “family” coverage refers to any coverage other than self-only coverage. In other words, the plan is treated as family coverage if at least one other individual other than the employee (e.g., spouses, domestic partner, child(ren)) is covered under the HDHP. The sum of the annual deductible and any other in-network out-of-pocket expenses (e.g., copayments, coinsurance) apply toward the OOPM, but out-of-network expenses are not required to apply toward the HDHP OOPM.

IRS guidance further provides that the “plan must provide significant benefits to be an HDHP.” For example, although HDHPs are permitted to impose “reasonable benefit restrictions limiting the plan’s covered benefits,” a plan would not qualify as an HDHP if it provided benefits only for expenses of hospitalization or in-patient care. While this may seem to be an ambiguous rule, in practice it is generally clear whether a plan is intending to serve as a full major medical plan HDHP, or as a supplemental non-HDHP type arrangement.

HDHPs can also cover preventive care without requiring the minimum statutory deductible. Examples include:

• Periodic health evaluations, including annual physicals,

• Routine prenatal and well-child care

• Child and adult immunizations

• Tobacco cessation programs

• Obesity weight-loss programs

• Screening services (see IRS Notice 2004-23 for more details)

• The ACA preventive services that are required to be provided without cost-sharing for non-grandfathered health plans (see The ACA Preventive Health Services Mandate for more details)

• Medical services and items to prevent exacerbation of a chronic condition (see IRS Expansion of Preventive Care to Include Chronic Conditions for more details)

• Additional Types of Contraception (see HDHP Preventive Care Expanded to More Contraceptives)

HSA Eligibility Requirement #2: No Disqualifying Coverage
In addition to the required HDHP coverage, HSA-eligible individuals cannot have any other health coverage that is not HSA-compatible. In general, any type of health coverage (including account-based plans) that covers non-preventive medical expenses prior to satisfying the statutory minimum HDHP deductible is disqualifying coverage that blocks the individual from HSA eligibility. The mere fact that an individual is covered by a form of disqualifying coverage is sufficient to block HSA eligibility—it does not matter if the individual actually has or submits any eligible claims. Employees with disqualifying coverage can still enroll in the HDHP, but they cannot make or receive HSA contributions.

There are two main categories of types of coverage that the HSA rules specifically provide are not disqualifying coverage and therefore do not disrupt HSA eligibility:

1. Permitted Insurance

• Insurance policies where substantially all of the coverage relates to liabilities incurred under workers’ compensation laws

• Insurance policies where substantially all of the coverage relates to tort liabilities

• Insurance policies where substantially all of the coverage relates to liabilities relating to ownership or use of - property

• Insurance for a specified disease or illness

• Insurance paying a fixed amount per day (or other period) of hospitalization.
  
  The IRS has a brief overview of these permitted insurance rules in Q/A 7-8 of Notice 2004-50. The IRS provides a much more extensive discussion in PLR 200704010. Only fully insured policies can be permitted insurance.

2. Permitted Coverage

• Coverage for accidents

• Coverage for disability

• Coverage for dental care

• Coverage for vision care

• Coverage for long-term care

IRS guidance in Q/A-6 of Notice 2004-2 and in Revenue Ruling 2004-45 confirms that permitted coverage can be either fully insured or self-insured.

Examples of Common Types of Disqualifying Coverage
Non-HDHP Medical Plan
Enrollment in any medical plan that is not HSA-compatible will block HSA eligibility. This includes coverage as an employee or dependent through another non-HDHP employer-sponsored plan.

Example 1:

• Jack Shephard has HDHP coverage through his employer St. Sebastian Hospital.

• Jack’s spouse Juliet Burke is enrolled in a standard HMO through her employer Miami Central Medical Research Laboratory.

• Juliet covers Jack as a dependent under her employer’s HMO coverage.

Result 1:

• Jack is not HSA-eligible because his HMO enrollment as a dependent through his spouse Juliet’s employer is disqualifying coverage.

• Jack can remain enrolled in his employer’s HDHP, but he cannot make or receive HSA contributions.

General Purpose Health FSA
Enrollment in a general purpose health FSA is disqualifying coverage for both the employee and spouse because the health FSA allows both individuals to incur reimbursable non-preventive medical expenses pre-deductible. The result is that if either spouse is enrolled in the general purpose health FSA through their respective employer, neither spouse is HSA-eligible.

Example 2:

• Kate Austen is a waitress at Neighborhood Diner and enrolled in the company’s general purpose health FSA.

• Kate’s spouse James “Sawyer” Ford works at Big Time Banks and is enrolled in the company’s HDHP.

Result 2:

• Both Kate and James are not HSA-eligible because Kate’s general purpose health FSA enrollment is disqualifying coverage for both individuals.

• Sawyer can remain enrolled in his employer’s HDHP, but he cannot make or receive HSA contributions.

For more details: HSA Interaction with Health FSA

HRA
Unless it is specially designed to be HSA-compatible, enrollment in an HRA is disqualifying coverage that blocks HSA eligibility. This includes specialty HRAs designed to address specific medical expenses such as infertility, gender affirmation, mental health, abortion-related travel assistance, autism, etc.

Example 3:

• Sun Kwon has HDHP coverage and is enrolled in an infertility HRA through her employer Paik Heavy Industries.

Result 3:

• Sun is not HSA-eligible because her infertility HRA enrollment is disqualifying coverage.

• She can remain enrolled in her employer’s HDHP, but she cannot make or receive HSA contributions.

For more details: Newfront Fringe Benefits for Employers Guide

Examples of Common Types of Coverage that Do Not Affect HSA Eligibility
Dual Coverage Under Another HDHP
Enrollment in more than one HDHP does not affect HSA eligibility. This sometimes occurs where an individual will have HDHP coverage as an employee and as a dependent through another employer’s plan.

Example 5:

• Rose Nadler has HDHP coverage through her employer Temp Agency Associates.

• Rose’s spouse Bernard Nadler is enrolled in the HDHP through his employer Sweet Teeth Dentistry, and he also covers Rose as a spouse under his employer’s plan.

Result 5:

• Rose’s HSA eligibility is not affected by her dual HDHP enrollment.

• Assuming she has no other disqualifying coverage, Rose can make and receive HSA contributions.

Limited Purpose Health FSA
A health FSA that is limited to dental, vision, and preventive expenses is not disqualifying coverage. These are commonly referred to as a “limited purpose health FSA”. This approach does not affect employees’ HSA eligibility because there is an exception to the HDHP minimum deductible requirement that offers the ability to provide first-dollar coverage (i.e., not subject to the deductible) for preventive services and “permitted coverage” without affecting HSA eligibility. Permitted coverage includes dental care and vision care.

Example 6:

• Hugo “Hurley” Reyes has HDHP coverage through his employer Mr. Cluck’s Chicken Shack.

• He is also enrolled in the company’s limited purpose health FSA that reimburses only dental, vision, and preventive expenses.

Result 6:

• Hugo’s HSA eligibility is not affected by his limited purpose FSA enrollment.

• Assuming he has no other disqualifying coverage, Hugo can make and receive HSA contributions.

For more details: Limited Purpose Health FSA Preventive Expenses

Combination Health FSA
Coverage under a post-deductible health FSA also does not block HSA eligibility because it does not reimburse expenses until the employee has reached the statutory minimum HDHP deductible. “Combination health FSAs” provide that before the employee reaches the statutory minimum HDHP deductible, the FSA operates in the same manner as a standard limited purpose health FSA (i.e., by reimbursing only dental, vision, and preventive expenses). After the employee reaches the statutory minimum HDHP deductible, the FSA operates in the same manner as a standard general purpose health FSA by also reimbursing non-preventive medical expenses (in addition to dental, vision, and preventive expenses).

Example 7:

Ana Lucia Cortez has employee-only HDHP coverage through her employer the Los Angeles Police Department.

She is also enrolled in the employer’s combination health FSA.

Ana Lucia incurs $150 in mental health therapy costs after having satisfied the minimum statutory HDHP deductible ($1,650 in 2025), which she submits and has reimbursed by the combination health FSA.

Result 7:

• Ana Lucia’s HSA eligibility is not affected by her combination health FSA enrollment.

• The combination health FSA is not disqualifying coverage because she cannot incur reimbursable non-preventive medical expenses until after satisfying the minimum statutory HDHP deductible.

• Assuming she has no other disqualifying coverage, Ana Lucia can make and receive HSA contributions.

For more details: The Combination Health FSA

Post-Deductible HRA
Coverage under a post-deductible HRA does not block HSA eligibility because it does not reimburse expenses until the employee has reached the statutory minimum HDHP deductible. Eligible expenses must be incurred after satisfying the deductible to qualify. Expenses incurred before the date the employee satisfies the statutory minimum HDHP deductible are not eligible—even if the employee submits the receipts for those expenses after satisfying the deductible. Post-deductible HRAs will typically require that the employee submit an EOB or other form of similar substantiating documentation to verify the date the employee has reached the minimum statutory deductible.

Example 8:

• Claire Littleton has employee-only HDHP coverage through her employer Fish & Fry restaurant.

• She is also enrolled in the company’s infertility HRA, which is structured as a post-deductible HRA for all employees enrolled in the HDHP.

• Claire incurs $10,000 in IVF costs after having satisfied the minimum statutory HDHP deductible ($1,650 in 2025), which she submits and has reimbursed by the infertility HRA.

Result 8:

• Claire’s HSA eligibility is not affected by her infertility HRA enrollment.

• The infertility HRA is not disqualifying coverage because she cannot incur reimbursable expenses until after satisfying the minimum statutory HDHP deductible.

• Assuming she has no other disqualifying coverage, Claire can make and receive HSA contributions.

For more details: Post Deductible HRAs Preserve HSA Eligibility

EAP
Employers frequently offer an EAP to all employees that provides a variety of support programs to assist employees and eligible dependents, primarily in the areas of mental and emotional well-being such as alcohol and other substance abuse, stress, grief, family problems, and psychological disorders. Although plan designs vary considerably, EAPs generally offer free and confidential assessments, short-term counseling, referrals, and follow-up services for employees. EAP counselors may also assist in coping with workplace violence, trauma, and other emergency response situations.

IRS guidance in Q/A-10 of Notice 2004-50confirms that EAPs are not disqualifying coverage—as long as the program does not provide “significant benefits in the nature of medical care or treatment.” Unfortunately, this standard is not clearly defined. For example, there is no specific limit on the number of counseling sessions that the EAP can offer and still remain within this definition. However, in practice the standard EAP structure generally does not present any HSA eligibility concerns for employees enrolled in the HDHP.

Wellness Program
Wellness programs are a common benefit that provide health promotion and disease prevention programs. The standard approach offers various incentives/rewards to participate in health activities or achieve certain desirable health outcomes. They also may offer a wide range of education and fitness services designed to improve the overall health of the employees and prevent illness. Typical services include education, fitness, sports, and recreation activities, stress management and health screenings.

IRS guidance in Q/A-10 of Notice 2004-50confirms that wellness programs are not disqualifying coverage—as long as the program does not provide “significant benefits in the nature of medical care or treatment.” Unfortunately, this standard is not clearly defined. However, in practice the standard wellness program structure generally does not present any HSA eligibility concerns for employees enrolled in the HDHP.

• For more details: Newfront Wellness Program Guide

Separate Telemedicine with FMV Charge for HDHP Participants
Telemedicine coverage that is incorporated into the HDHP is subject to the same deductible as all other services and therefore does not create HSA eligibility issues. However, telemedicine offered outside the HDHP (i.e., through a separate telemedicine vendor) is disqualifying coverage that blocks HSA eligibility unless it is specifically designed to be HSA-compatible.

A common approach to permit HDHP participants to access telemedicine services without affecting HSA eligibility is to require that employees pay the fair market value for sessions, at least prior to satisfying the minimum statutory deductible. IRS guidance in Q/A-9 of Notice 2004-50 and Information Letter 2021-0014 provides that this approach is not disqualifying coverage—even if available to enrollees on a discounted basis through the program vendor—because it does not provide any employer subsidization that would ultimately constitute pre-deductible reimbursement for services.

Example 9:

• Daniel Faraday has HDHP coverage through his employer Oxford University.

• He is also enrolled in the employer’s separate telemedicine benefit that is specifically designed to be HSA-compatible by requiring employees pay the fair market value for sessions.

Result 9:

• Daniel’s HSA eligibility is not affected by his separate telemedicine enrollment.

• The telemedicine benefit is not disqualifying coverage because it does not pay for any services prior to satisfying the minimum statutory HDHP deductible.

• Assuming he has no other disqualifying coverage, Daniel can make and receive HSA contributions.

Stay tuned for The HSA Eligibility Requirements: Part II addressing the other eligibility requirements!

Relevant Cites:

IRC §223(c)(1)(A):
(c) Definitions and special rules.
For purposes of this section —
(1) Eligible individual.
(A) In general. The term “eligible individual” means, with respect to any month, any individual if—
(i) such individual is covered under a high deductible health plan as of the 1st day of such month, and
(ii) such individual is not, while covered under a high deductible health plan, covered under any health plan—
(I) which is not a high deductible health plan, and
(II) which provides coverage for any benefit which is covered under the high deductible health plan.

IRS Notice 2004-2:
Q-2. Who is eligible to establish an HSA?
A-2. An “eligible individual” can establish an HSA. An “eligible individual” means, with respect to any month, any individual who: (1) is covered under a high-deductible health plan (HDHP) on the first day of such month; (2) is not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage); (3) is not enrolled in Medicare (generally, has not yet reached age 65); and (4) may not be claimed as a dependent on another person’s tax return.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).