I've been searching for a clear-cut answer to this for a while, to no avail. My employer benefits advisor's guidance was unsatisfactory, and my CPA hasn't gotten back to me about it. And so...once more unto the internet I go.
This will be more information than necessary, but I might as well provide all of the context in case there's something useful that I'd otherwise overlook.
Jan 1 - My wife and 2 kids were enrolled in a PPO with a small Health Care FSA (maybe just the rollover from previous year) through my employer at the time (EMPLOYER A).
Jan 31 - I was laid off from EMPLOYER A. We looked at the options, and ended up putting my wife on the individual PPO plan with a $2750 Health Care FSA election through her employer (EMPLOYER B). Meanwhile, the kids and I stayed on EMPLOYER A's plan via COBRA while I looked for a new job.
Feb - November - I stopped paying the COBRA premiums due to CARES Act, incurred very few medical expenses, but paid cash in those cases (which we will claim—but haven't yet reimbursed—through her FSA). I remained unemployed.
November 2 - I started a new job (EMPLOYER C). I can now enroll in coverage retroactive to November 2, and it's a qualifying life event that would allow me to change my wife's coverage as well. The most affordable option is to put everyone (me, wife, kids) on EMPLOYER C's HDHP + HSA, with the employer contributing a good chunk to that HSA.
We haven't made any changes yet, but my expectation is that we will cancel my wife's coverage as of November 1 and enroll her (and the family) on my new HDHP as of November 2. All affected plan years are otherwise Jan 1 - Dec 31.
The question is: Given that my wife had an FSA (last contribution was November 5) for plan year 2020, and I guess I did too on EMPLOYER A's plan earlier this year, am I allowed to contribute to an HSA for the remainder of 2020 if the previous health coverage and FSA is cancelled prior to enrolling in the new EMPLOYER C coverage?
State is Texas. Wife's premium through EMPLOYER B is currently like $400/mo. My PPO option for the whole family through EMPLOYER C would be a $450/mo premium. My HDHP option for the family would be $270/mo premium, plus employer would contribute like $300/mo to an HSA.
So, you can see that it's a lot cheaper to just get everyone on the EMPLOYER C HDHP ASAP NAACP YMCA, though only for a couple of months.
- Just pay a little more for the new PPO for two months to avoid the headache.
- Spend down as much of the previous FSA as we can, and then switch everyone to my new HDHP + HSA and max out whatever contribution I'm allowed through the end of the year.
- Switch everyone to my HDHP but don't elect the HSA for this 2020 plan year, presuming the FSA disqualifies me from having an HSA, even if the plan with the FSA is cancelled.
This seems like a fairly common occurrence. And yet, it's been really hard to get a definitive answer to my specific scenario. If I'm missing any details, let me know.