Our company is acquiring another entity in the middle of our group health plan’s plan year. Our company sponsors various medical plan options — including a preferred provider organization (PPO) and several high-deductible health plans (HDHPs) — while the acquired company sponsored only PPO options. When the acquired employees enroll in our group health plan, can our plan apply the amounts employees (and their dependents) accumulated toward deductibles and out-of-pocket maximums under the acquired company’s plans before the effective date of coverage under our plan?
Answer
Yes. Generally, deductibles and out-of-pocket maximums (referred to as accumulators) under one group health plan can be applied toward the accumulators of another plan when an individual switches midyear. This is referred to as an “accumulator transfer.” Employers must keep several compliance issues in mind in this scenario, discussed below.
Background
In a midyear acquisition situation, or even if an employer overhauls its group health plan structure midyear or allows plan option changes based on a midyear special enrollment, changes often occur in the types of plan options available to employees (e.g., exclusive provider organization, PPO, HDHP).
In these situations, it is generally allowable to apply accumulators from the “old” plan to help satisfy the accumulators of the “new” plan. Health savings account (HSA) eligibility and contribution issues must be addressed when an individual moves from a PPO to an HDHP but not when an individual moves from an HDHP to a PPO. Below are some considerations on permitting an accumulator transfer.
Purchase agreement
Employer plan sponsors should consider whether to allow an accumulator transfer for employees entering their plans or changing plan options midyear in a business purchase situation. If an employer is selling all or part of its company, it should consider whether to require an accumulator transfer on behalf of the employees who will be part of the buyer after the sale. It is recommended that any agreement between a buyer and seller be made part of the purchase agreement.
Willingness and ability of insurer/TPA to apply the transfer
No regulations require the application of the accumulators from the old plan to the new plan. If an employer plan sponsor wishes to transfer the accumulators, it should confirm that the insurer or the third-party administrator (TPA) is willing, and able, to apply the accumulators from the old plan to the new plan. This should be made part of the plan sponsor’s agreement with the insurer or TPA, either through a new contract or through a contract amendment. Best practice is to limit accumulator transfer only to individuals who do not have a break in coverage between the old plan and the new plan.
Plan documentation
The official plan document and summary plan description (SPD) should be reviewed and updated to allow accumulator transfers in specific situations (or disallow them if the plan sponsor does not want to allow accumulator transfers).
Employee communication
The plan’s accumulator transfer provisions should be clearly and timely communicated to affected employees.
Effect on HSA eligibility
A group health plan may allow for an accumulator transfer when an individual switches from a PPO to an HDHP midyear without disqualifying the HDHP or the individual from being eligible to contribute to an HSA, as long as the individual is required to satisfy the HDHP accumulators (taking into account the transfer) before the HDHP pays benefits. This is true even if the individual had satisfied the PPO accumulators under the old plan and had been reimbursed for expenses before enrolling in the HDHP. HSA eligibility is determined on the first of every month. So, for example, if an individual moves from a PPO to an HDHP with coverage effective April 1, 2026, and has no other non-HDHP coverage, that individual is eligible to contribute to an HSA. The fact that the individual was enrolled in a PPO on March 31, 2026, and utilized benefits under that PPO for the prior month does not impact HSA eligibility upon enrollment in the HDHP.
Effect on contribution limits
An employee moving from a PPO to an HDHP may elect to contribute to an HSA, even though an accumulator transfer occurred. If the employee is not enrolled in an HDHP for the full calendar year, they must prorate their maximum contribution for the time they were covered by the HDHP. The employee’s contribution would be limited to one-twelfth of the HSA maximum annual contribution multiplied by the number of months participating in the HDHP for the plan year. For example, if the employee becomes covered under an HDHP on April 1, 2026, and has no other non-HDHP coverage, that employee could contribute nine-twelfths of the HSA maximum annual contribution during the remainder of 2026 (the maximum annual contribution limits for 2026 are $4,400 for self-only coverage and $8,750 for family coverage).
The employee also has the option to use the “last month rule” whereby an employee who was not enrolled in the HDHP for the full calendar year may still contribute the maximum annual amount to their HSA if they are HSA eligible on December 1 of the year at issue and remain covered under the HDHP (and no other non-HDHP coverage) until at least the end of the following plan year. For example, if the employee becomes covered by an HDHP on April 1, 2026, and has no other non-HDHP healthcare coverage, they can elect to contribute to their HSA beginning April 1, 2026, and provided they remain covered under the HDHP and HSA eligible until December 31, 2027, they can contribute the HSA maximum for 2026 ($4,400 for self-only coverage and $8,750 for family coverage). If the employee does not maintain HDHP coverage and HSA eligibility during the 13-month testing period, any excess contributions become taxable income and would also be subject to a 10% penalty.
Note: It is the employee’s responsibility to determine whether to contribute to an HSA on a pro rata basis or use the last month rule. The employer plan sponsor cannot limit the employee’s right to use either method of contributing.
Takeaways
Employer plan sponsors should consider whether to allow accumulator transfers in such scenarios as mergers and acquisitions, midyear plan option changes and midyear special enrollment changes; WTW recommends that clients discuss this with their legal counsel to address all compliance issues
Accumulator transfers (or lack thereof) should be documented in purchase agreements, insurer/TPA contracts, plan documents and SPDs, and other employee communications
Employer plan sponsors should consider discussing appropriate employee communications with the HSA vendor to help employees decide whether to make prorated HSA contributions or to implement the last month rule
