Can an employee have both an ICHRA and a Health Savings Account (HSA)?

It depends on how the ICHRA is structured. A standard ICHRA will disqualify an employee from contributing to an HSA, but employers can design an HSA-compatible ICHRA that allows employees to maintain HSA eligibility.

Why a standard ICHRA affects HSA eligibility

To contribute to an HSA, an individual must be enrolled in an HSA-eligible high-deductible health plan (HDHP) and cannot be covered by other health coverage that provides benefits before the HDHP deductible is met.

A standard ICHRA that reimburses for qualified medical expenses—such as copays, prescriptions, and other out-of-pocket costs—is considered disqualifying coverage because it provides first-dollar benefits. Even if the employee is enrolled in an HDHP, having access to an ICHRA that reimburses general medical expenses makes them ineligible to contribute to an HSA.

What is an HSA-compatible ICHRA?

Employers who want to offer an ICHRA while preserving employees' HSA eligibility can structure the arrangement as an HSA-compatible ICHRA (sometimes called a "limited-purpose ICHRA"). This type of ICHRA restricts what can be reimbursed so that it doesn't interfere with HSA eligibility.

An HSA-compatible ICHRA typically limits reimbursements to:

• Individual health insurance premiums (this does not disqualify HSA eligibility)
• Preventive care expenses
• Limited-purpose expenses such as dental and vision
• Medical expenses incurred after the employee has met their HDHP deductible

By excluding reimbursement for general medical expenses before the deductible is met, the ICHRA avoids being classified as disqualifying coverage.

How this works in practice

An employee participating in an HSA-compatible ICHRA would:

1. Enroll in an HSA-eligible HDHP through the individual market
2. Receive ICHRA reimbursements for their monthly premiums
3. Contribute to their HSA and use those funds for out-of-pocket expenses before meeting their deductible
4. After meeting their HDHP deductible, become eligible to use the ICHRA for other qualified medical expenses (if the plan allows)

This approach combines the tax advantages of both the ICHRA and the HSA while staying compliant with IRS rules.

Key considerations for employers

Employers offering an HSA-compatible ICHRA should:

• Clearly document the reimbursement limitations in the plan design
• Communicate to employees how the ICHRA interacts with HSA eligibility
• Ensure the ICHRA administrator is set up to enforce the appropriate restrictions

Key considerations for employees

Employees who value their HSA should:

• Confirm whether their employer's ICHRA is HSA-compatible before enrolling
• Understand that accepting reimbursements from a standard ICHRA—even once—can disqualify them from making HSA contributions for that period
• Consult a tax advisor if they're unsure how their specific situation is affected

What if an employee doesn't want to participate in the ICHRA?

Employees can waive ICHRA participation to preserve HSA eligibility. However, waiving the ICHRA may also affect their eligibility for premium tax credits, so employees should weigh both factors when deciding.