October 12, 2010
Medical Allowances and Health Savings Accounts
Can churches legally designate medical allowances for pastor health plans?
Question: We are entertaining the idea of changing our health care coverage to a HSA (Health Saving Account)-compatible policy. Presently our three pastors receive a designated amount of medical allowances each year to help them cover the costs of out-of-pocket moneies that go toward their deductible. Is it legal to still set aside a designated medical allowance within our budget if we go to a HSA-compatible policy?
Answer: Health Saving Accounts (HSA's) are medical reimbursement accounts that are regulated through the IRS. An HSA is generally only permitted in conjunction with a high deductible health plan. So, depending on how you use the medical allowance, it may impact whether it is legally permitted.
I'm assuming with your current plan, the pastoral staff submits receipts for medical expenses and then is reimbursed up to a designated amount. When you switch to a high deductible plan, it makes sense to take the designated money and deposit it into their HSA account. This is legal as long as all of the pastors are part of a high deductible health plan (i.e. they don't have a traditional health plan with co-pays somewhere else). One other item to be aware of is that the IRS sets limits on how much may be contributed into an HSA account. The IRS changes these limits each year.
For 2010, the maximum contribution into an HSA is $3,050 for an individual and $6,150 for a family (there's also a $1,000 catch up amount for anyone over the age of 55). The limit includes both the employer's contribution as well as any employee contribution. This approach is legally permissible.
You may also be asking whether you can have a medical allowance in addition to a health savings account. This most often occurs when either one of the pastors does not utilize the church's insurance plan or when the church wants to cover expenses in excess of the HSA amount or items not included under health deductibles (such as contacts or dental work). This approach faces more legal hurdles and you will need to be careful that it doesn't violate IRS guidelines.
If you are considering a medical allowance in addition to using an HSA or you have additional questions about how a HSA works, I would suggest you visit the following website for additional clarification: http://www.treas.gov/offices/public-affairs/hsa/.
This answer is provided for informational purposes only, not as legal advice. It first appeared on our sister site ChurchSafety.com.