Consumer Directed HealthSelectSM Health Savings Accounts
HSAs are “tax-advantaged” or “tax-free” in that they can help you save on taxes. There are three ways an HSA can help you save on taxes:
An HSA can lower your taxable income because contributions to the account, up to a certain amount, are made with tax-free dollars. If you’re an active employee, the contributions can be deducted from your paycheck before taxes are taken out. If you’re an active employee or a retiree, you can make contributions directly to your account and then deduct those contributions when you file your income tax return.
Any interest and investment earnings your HSA realizes are not taxed.
You do not have to pay taxes on any withdrawals from your HSA that are used to pay for qualified medical expenses.
Both HSAs and health care FSAs help lower your taxable income by letting you save money tax-free to pay for qualified health expenses. But there are some important differences. With an HSA:
You must be enrolled in a high-deductible health plan, like Consumer Directed HealthSelect.
The State of Texas will make monthly contributions to the accounts of eligible employees and retirees.
You own your account, so you keep your funds even if you change health plans or go to a different job. (NOTE: If you leave state employment, you will be responsible for paying the monthly HSA administrative fee on your HSA. The fee will be deducted from your remaining balance each month.)
All the money in your account carries over from year to year, so you can choose to save the money for qualified health expenses in the future.
You don’t need approvals for reimbursements or withdrawals. Just keep in mind that if you use the money for anything but qualified health expenses (as defined by the IRS), you could have to pay taxes on that money, as well as a penalty to the IRS. (It’s still important to keep your receipts for the health costs you pay for with HSA funds, in case you need to prove to the IRS that you spent your funds on eligible expenses.)
You have access only to the money that’s in your account.
Employees can change their pre-tax paycheck contributions at any time during the plan year.
The annual maximum contribution to an HSA is higher than the annual maximum contribution to an FSA. The IRS sets the annual maximums for both HSAs and FSAs. See the chart under Question 27 for HSA annual maximums.
You can contribute to an HSA if you’re working or retired (but not enrolled in Medicare).
To enroll in an HSA, or make or get contributions to an HSA, you must be enrolled in a high-deductible health plan (HDHP) like Consumer Directed HealthSelect and you must not be enrolled in Medicare. You cannot enroll in, make contributions to or accept contributions to an HSA if:
- You are covered by any other non-HDHP, such as a spouse’s plan, that provides any benefits covered by your HDHP with Consumer Directed HealthSelect. Exceptions include coverage like vision or dental.
- You are claimed as a dependent on someone else’s tax return.
- You receive benefits under TRICARE or TRICARE for Life.
- You have a health care flexible spending account (health care FSA), like a TexFlex health care account, in the same plan year. For information about enrolling in Consumer Directed HealthSelect if you have funds remaining in a TexFlex health care flexible spending account, please see "Can I keep TexFlex health care flexible spending account if I switch to Consumer Directed HealthSelect?" below.
If you’re thinking about enrolling in Consumer Directed HealthSelect, you should carefully review IRS rules or talk to a financial or tax advisor to make sure you’re eligible to enroll in or make or accept contributions to an HSA.
When you make the election to enroll in Consumer Directed HealthSelect through your online ERS account, there will be a link to the Optum Bank site (http://optumbank.com/texasers) on which you can open your HSA. If you don’t open your HSA through your ERS online account, Optum Bank will send you information about opening an account after you enroll in Consumer Directed HealthSelect.
ERS, your benefits coordinator, Optum Bank or Blue Cross and Blue Shield of Texas will not open your account for you. The State of Texas will make contributions only to Optum Bank HSAs.
It’s important to open your Optum Bank HSA as soon as possible, so you can begin getting the state’s contribution as soon as possible. In addition, you can use your HSA funds to pay only for qualified medical expenses you incur after your account has been opened.
If you’re an active employee, you can have contributions taken from your paycheck pre-tax and deposited in your HSA. You can set up automatic paycheck contributions through your ERS OnLine account or with help from your HR or Payroll department. These contributions will typically be in your HSA within two or three weeks after your paycheck is issued to you.
If you’re an employee or retiree, you can deposit money directly to your account, post-tax. The contributions can then be claimed as deductions when you file your annual tax return. It’s up to you, as the account holder, to make sure the total deposits to your HSA don’t go over the IRS’ annual maximum. If you go over the annual maximum, you could have to pay taxes on the additional deposits, as well as a penalty to the IRS.
Yes. The State of Texas will contribute to eligible employees’ and retirees’ Optum Bank HSAs on a pre-tax basis. The Plan Year 2023 state contribution amount for eligible employees and retirees is $45 per month ($540 per year) for an individual account or $90 per month ($1,080 per year) for a family account. A member will get the state's contribution only if he or she opens an HSA with Optum Bank.
In general, an employee or retiree is eligible to get the state's contribution to an HSA if they get the state’s contribution to their health insurance premium and are not eligible for Medicare. Active employees can check with their HR department to make sure they're eligible to get the state’s HSA contribution. Retirees can contact ERS. You also should review IRS regulations, or talk to a financial or tax advisor to make sure you’re eligible to open an HSA under IRS rules.
Funds are available once they’re deposited in the HSA. Funds cannot be spent before they’re actually in the account, or you might incur a fee for insufficient funds. This is different from a health care or limited-purpose flexible spending account, which lets you use money upfront that’s pledged to be deposited later. (You can check your HSA balance 24/7 on the Optum Bank website or with the Optum Bank app.)
If you elect Consumer Directed HealthSelect during Summer Enrollment and open your HSA by early September, the first state deposit into the account will typically occur two or three weeks after you get your September 30 retirement payment or your October 1 paycheck.
If you’re an active employee and want pre-tax contributions deducted from your October 1 paycheck, you will need to set up those deductions in August so they can be withheld from your September paycheck (issued October 1). You can set up paycheck deductions in your ERS OnLine account or with help from your HR or Payroll department.
If you contribute more than the allowable amount to your HSA by accident or because you ended coverage in an eligible health plan, you will have to count the extra amount as taxable income and pay a 6% penalty.
To avoid paying taxes and incurring a penalty, you can fill out an Excess Contribution and Deposit Correction Request Form (available on the Resources section Forms page of the Optum Bank website) and submit it to Optum Bank to have excess funds returned to you.
No. Under IRS rules, someone cannot contribute to an HSA and a health care FSA, such as TexFlex, in the same plan year. You can participate in a TexFlex limited-purpose FSA to pay for qualified dental and vision expenses. You also can participate in a TexFlex dependent care FSA.
If you enroll in Consumer Directed HealthSelect for the upcoming plan year (starting September 1) and have $25 to $500 left in a TexFlex health care FSA at the end of the current plan year (after August 31), ERS will roll that money into a TexFlex limited-purpose FSA for use on qualified vision and dental expenses. Only people participating in Consumer Directed HealthSelect can participate in the TexFlex limited-purpose FSA.
If you have less than $25 left in your TexFlex health care account after August 31, you can roll that money into a TexFlex limited-purpose FSA, but you will have to set up the FSA and transfer the money yourself. ERS will not do it for you.
If you enroll in Consumer Directed HealthSelect for the upcoming plan year (starting September 1) and have $25 to $500 left in a TexFlex health care account at the end of the current plan year (after August 31), ERS will roll that money into a TexFlex limited flexible spending account (LFSA). Money in an LFSA can be used only on qualified vision and dental expenses. Only people participating in Consumer Directed HealthSelect can participate in the TexFlex LFSA.
If you have less than $25 left in your TexFlex health care account after August 31, you can roll that money into a TexFlex LFSA, but you will have to set up the LFSA and transfer the money yourself. ERS will not do it for you.
The state’s contribution will be available once it’s deposited in the HSA. This usually will happen two or three weeks after you get your monthly salary or retirement payment. For example, the September paycheck contribution to an HSA will typically be available the second or third week of October.
Employees and retirees enrolled in Consumer Directed HealthSelect can contribute tax-free funds to their HSAs – up to an amount set by the IRS each calendar year. Please see the table below for 2023 maximum contributions. These maximums include contributions from all sources, including the State of Texas and the account holder. Only people participating in Consumer Directed HealthSelect can make tax-free contributions or accept contributions to their HSAs.
HSA Contribution Limits
|Individual account||Family account
(member + one or more dependents)
|Annual maximum contribution
January 1 - December 31, 2023
Members who are 55 years or older can have an additional "catch up" contribution of up to $1,000 per year, for 2021 and 2022.
HSA contributions and limits may change from year to year, or based on eligibility requirements and the participant’s age. Maximums are set by the IRS and include all contributions -- both pre-tax and post-tax -- to an HSA.
When savings in your HSA reach more than $2,000, you can decide how to invest any funds over $2,000. Optum Bank has a variety of investment options. Investment earnings and interest aren’t taxed. It’s important to keep in mind that invested funds can lose value.
- More detailed information is available on the Consumer Directed HealthSelectSM website.
- Optum Bank has information and resources on its website.