An HSA is a tax-favored savings vehicle designed to help individuals pay for eligible medical expenses, either while employed or during retirement. To be eligible to contribute to an HSA, the individual must be covered under a qualified High Deductible Health Plan (HDHP) and may not be covered under any other health insurance that is not a high-deductible health plan, such as an HMO.
HSAs are attractive to employers because they lower the organization’s taxable payroll. As an incentive, many employers choose to pass on a portion of this savings as contributions to their employees’ HSAs.
HSAs have a unique tax structure. The employer and employee contributions to HSAs are tax free, earnings on investments within the HSA are tax free and withdrawals from the account to pay for eligible out-of-pocket medical expenses are also tax free. This triple tax savings — contributions, earnings and withdrawals from the account are tax advantaged. In addition, unlike traditional IRAs, no income restrictions are placed on participating in an HSA. (Source: Center on Budget and Policy Priorities, http://www.cbpp.org/9-20-06health.pdf)
With an HSA, there is no use-it-or-lose-it rule. HSAs are individually owned and completely portable. Each year, unused funds remaining in the account gain interest or earnings tax free and continue to be available for future use. Distributions from an HSA for expenses other than eligible medical expenses are subject to income tax and an additional 10 percent tax. Once an individual reaches age 65, however, there is no additional tax on these distributions.
SAP HCM Solution to HSA
SAP has provided functionality within its HCM – Benefits environment for the administration and processing of HSA Plan functionality. However during implementation – as is sometimes the case with new SAP functionality, there are a few got-ya’s. This document will attempt to shed some light on these situations where extra attention needs to be placed in the implementation of the HSA solution. There will be no effort in this document to train on benefits implementation; efforts will be to point out some salient facts as concerns HSA functionality and implementation.
First and foremost the application of SAP note 930319 is a must for the implementation of HSA functionality within the SAP HCM environment. Configuration will include technical data entry of HS with values HS – Date Type and Date indicator of “1”. This is done via the IMG step: Personnel Management → Personnel Administration → Evaluation Basis → Date Specifications → Define date type. Where the HSA Termination date is set.
Next is the definition of plan type HSAP (Health Savings Account Plan) within plan category “C” – Savings plan. This is done within the IMG step: Personnel Management → Benefits → Basic Settings → Plan Attributes → Define Benefit Plan Types.
Assuming that Health plans have been defined in the system, the next step would be to Define HSA-Relevant HDHP Plans. This is where configuration is done to establish which Health plans are high deductable plans and also the deductible amounts per plans based on criteria of “Self-Only, Family, Embedded and Umbrella”.
In conjunction with the HDHP, a Health Savings Account Plan needs to be defined with the Savings Plans area of SAP Benefits configuration. The general data of the Savings plan must have the “HSA Plan” indicator checked.
Other details of the Savings plan are determined by the client business requirements. Usually, contributions to HSA plans are set to begin at the start of a month.
The next step critical to the set up of an HSA plan in SAP is the definition of Co-Requisite HDHP’s to the HSA plan. This is configured within the Flexible Administration area of SAP Benefits configuration in the step. Click on ”Define Co-Requisite Plans” and define the HDHP as co-requisite to the HSA plan. If there are multiple HDHP’s, make sure to define for all of the HDHP’s and use the radio button “Any Plan Required” in the definitions.
Employees enrolled in a HSA plan and not allowed to enroll in a standard FSA plan. A HSA relevant limited FSA plan would need to be defined/configured for these employees if there is not one existing.
Within the SAP Payroll module, a check needs to be made to determine that the payroll constants are updated in Table T511P for the HSA plan.
At this point, your HSA plan configuration is done. Please note that standard SAP Benefits plan configuration steps are implied in all the above and these steps were not mentioned with the assumption that the configurator is experienced in SAP configuration steps. What has been specifically itemized are the steps necessary for the configuration of HSA plans.
(Some excerpts of the above were taken from SAP documentation)