Can I switch from FSA to HSA mid-year while switching employers?

Question

From January through March this year, I was employed by Employer A and had an FSA set up for $500. I have spent all of the FSA. Starting the first week of April, I have been employed by Employer B. In the next few weeks I will need to elect benefits for the remainder of the year while working for Employer B. They offer an HDHP with an HSA (including an employer contribution!) that I would like to elect. My question is, am I eligible this year to contribute to an HSA while employed by Employer B given that I had an FSA earlier this year with my previous employer (Employer A)?

Additional details:

• The FSA with Employer A was in effect from March 15th through March 31st. That is, only expenses that occurred during that brief period were eligible for using FSA funds.
• The FSA would have been in effect until December 31st had I not switched employers.
• The HSA with Employer B would begin on June 1st (and my first paycheck contribution would be on June 9th).
• As mentioned above, I have spent all the FSA funds.
• The deadline to file claims for the FSA is next year, March 31st 2024. Not sure if this is relevant given I've already spent the funds.
• While working for Employer A, we did not use health insurance but were instead part of a health-share organization. My intention with Employer B would be to keep the rest of my family in the health-share plan and only elect coverage from the HDHP for myself.
• I am married and the sole wage-earner in the family.
• My wife has not worked, had an FSA, or contributed to an HSA any time in the last few years.
• I anticipate staying with Employer B for the long haul, and don't anticipate switching employers again any time soon.

Also: Yes, I carefully searched existing questions about having FSAs and making HSA contributions in the same year. Some existing questions are similar, but not similar enough to apply to my situation. So this question is not a duplicate.

Answer 1

I am going to start with a comment:

As mentioned above, I have spent all the FSA funds.

Your ability to use FSA funds has a deadline related to your old employer. If you hadn't spent the funds by the deadline you would not be able to get to the funds. There are two deadlines: last day a procedure is covered, and the last day to submit a claim. Leaving the company moves generally moves these deadlines.

Now to the rest of the question.

You can switch during the year if you have had a qualifying life event. Changing employers (in reality losing coverage) allows you to make that kind of switch.

Check with your new employer regarding their contribution. They may do things differently if you weren't an employee in January.

Because you will be the only one with the coverage under the high deductible plan remember that you have to follow the limit for single coverage.

Because you will not have coverage for the whole year, the amount you and the company can contribute is prorated. There is a way to contribute the entire annual amount, called the December first rule, but it requires you to be enrolled the entire next year. If you quit, are laid off, or drop the high deductible plan you can face a tax penalty.

During the period you will not have coverage, April and May, you will either have to use COBRA based on your old plan, or go through the Affordable Care Act exchange. Your medical expenses in April and May will not be payable from the new HSA, because it won't be setup until June.

Answer 2

In order to be eligible to contribute to an HSA, you need to be covered by an HDHP and not have any other health coverage. It does not have to be an entire year; you can be HSA-eligible for some months and not others, and the contribution limits are prorated based on how many months you were HSA eligible.

Being covered by an FSA does make you ineligible. However, if the FSA only covered you between March 15-March 31, you have the rest of the year when you could be HSA-eligible.

If you sign up for the employer HDHP health insurance starting June 1, and are no longer covered by the FSA, you would be HSA-eligible for 7 months in 2023. See this answer for details on how to determine your HSA contribution limit when you are only eligible for part of the year, including details on the “last month rule.”

Remember that anything your employer contributes to your HSA reduces the amount that you personally can contribute to the HSA. The limits are total contribution limits, whether from you or your employer.