Transcript PP_About HSAs_ER_1460_020708_V

Considering a
Health Savings Account?
HSA (Health Savings Account)
Eligibility
 Covered by a qualified high-deductible health
plan (HDHP)
 Not covered by any other non-HDHP coverage
 Not claimed as a dependent on another
person’s tax return
 Not enrolled in Medicare A or B
*Section 152 of the Internal Revenue Code excludes spouses from the
definition of dependent.
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What is a qualified high-deductible
health plan (HDHP)?
For 2008
Single
Family
Minimum
Deductible*
$1,100
$2,200
Max. Out of
Pocket**
$5,600
$11,200
For 2009
Single
Family
Minimum
Deductible*
$1,150
$2,300
Max. Out of
Pocket**
$5,800
$11,600
*Check with your insurance
provider to determine if
your plan meets the High
Deductible Health Plan
requirements.
**Qualifying deductible
ranges are limited by the
Maximum Out-Of-Pocket
expenses allowed.
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Basic HSA Plan Concept
Part 1: High Deductible Health Plan
For 2008
Single
Family
Min. Deductible
$1,100
$2,200
Max. Out of Pocket
$5,600
$11,200
Single
Family
Min. Deductible
$1,150
$2,300
Max. Out of Pocket
$5,800
$11,600
For 2009
HSA
Concept
Intended to
cover serious
illness or injury
Part 2: Health Savings Account
For 2008
Max. Contribution
For 2009
Max. Contribution
Single
Family
$2,900
$5,800
Single
Family
$3,000
$5,950
Can pay for
eligible expenses
not covered by
the health plan
Made by: Employer, Employee, and/or other party
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What is included in
Out-of-Pocket Maximum?
Included
 Deductible
 Co-insurance
 Co-pays
Not Included
 Payment of or penalties for
a service not pre-certified
 Payment to or penalties for
non-network providers
 Amounts over the usual,
customary, & reasonable
amounts
 Amounts for ineligible
expenses
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Advantages of an HSA
For an Employer
 Tax benefits
 Employee-owned funds promote increased
motivation for involvement in health care
decisions resulting in
 Health care dollars being spent more wisely
 Employees ‘shopping around’ for healthcare based on
quality of care and price
 HSAs allow “matching” contribution options by
employers and employees through a cafeteria plan
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Advantages of an HSA
For an Employee/Accountholder
 Funds roll over year to year
 No need to “use it or lose it”
 Tax benefits on the contributions, earnings, and
distributions
 Increases take home pay
 Even greater potential for 2007 and beyond
 Long-term investment opportunity
 Investment products are not FDIC insured, are not a deposit
or other obligation of or guaranteed by the bank, and are
subject to investment risks including possible loss of the
principal amount invested.
 Portability
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Basic HSA Concept
Compare to IRA
HSA
Earnings
Tax-Deferred
Growth
Contributions
Contributions
Tax-Deductible /
Pre-Tax
Contributions
Tax-Free Distributions
(For Qualified Medical Expenses)
* 10% Tax Penalty for
Non-Qualified medical
expenses before age 65
Normal Tax*
(NON-qualified expenses over age 65)
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Maximum Annual Contributions
 Are determined by the IRS
 $2,900 with individual or $5,800 with family coverage for 2008
 $3,000 for individual or $5,950 for family coverage for 2009
--
You can contribute the maximum amount regardless of deductible
 Can be made during the calendar year and until the
tax return due date of April 15th the following year.
 Do not need to be prorated based on the date
coverage began
 Some restrictions apply (examples provided on the next 2 slides)
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Prorating Provision
 If HDHP coverage begins after January 1st in a
given year, contributions no longer need to be
prorated as long as qualifying HDHP coverage
continues through December 31st of the
following year.
 Exception--Those who change from family to single
plans will need to prorate based on the number of
months under each type of coverage
Excess contributions will be subject to income tax and a tax penalty.
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Prorating Examples
Type of
Coverage
Coverage
Begins
Coverage
Ends
Allowed Contribution
2008
Allowed Contribution
2009
Individual
1/1/2008
12/31/2008
$2,900 (2008 Max)
$0
Individual
7/1/2008
12/31/2009
$2,900 (2008 Max)
$3,000 (2009 Max)
*Individual
7/1/2008
4/1/2009
$1,450 (6/12 of 2008 Max)
$750
(3/12 of 2009 Max)
*Individual
11/1/2008
11/1/2009
$483 (2/12 of 2008 Max)
$2,500
(10/12 of 2009 Max)
*Prorating is required to avoid tax penalties when an individual does not maintain qualifying HDHP
coverage through December 31st of the following year.
(Follow the same rules for family coverage, but use $5,800 for the 2008 maximum and
$5,950 for the 2009 maximum.)
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Additional HSA Funding Options…
 IRA funds may be rolled to an HSA on a one-time basis
 Subject to the annual HSA contribution maximum
 Only traditional IRAs qualify at this time
 Individuals must remain covered by a qualifying HDHP until the
last day of the 12th month following the month of rollover to
avoid tax penalties
 HRA and Health FSA may be rolled to an HSA
 Employers must amend their plan documents to allow this
 Rollovers must be made directly from the employer to the
custodian/trustee
*Always consult your tax advisor, and/or the IRS for details and reporting
requirements in regard to taxation, fund rollovers and other stipulations.
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HRA and Health FSA Rollover:
Employer Role
 Rollovers are optional for employers
 If rollovers are offered, employers must offer them to all
employees with qualifying HDHPs
 Employers must amend the plan documents to
allow rollovers by the end of the plan year
 Contact the health FSA or HRA plan administrator to amend
the plan documents
 Employers must limit the rollover to one time per
HRA or FSA
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HRA and Health FSA Rollover:
Employee Role
 Rollover amount is determined by the lower of the cash balance
on 9/21/2006 or the balance on the date of transfer
 Individuals with $0 FSA or HRA balance on 9/21/06 are
ineligible
 Rollovers must result in a zero balance or coverage under the
FSA/HRA must be waived to be eligible for an HSA
 Individuals must remain covered by a qualifying HDHP until the
last day of the 12th month following the month of rollover to
avoid tax penalties
 Employees must elect to have the funds rolled over by the end
of the plan year
 The funds in the FSA/HRA must be frozen by the end of the
plan year, and the rollover must be completed by the end of the
grace period. This is the same for calendar year and noncalendar year plans.
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What is the catch-up contribution?
Individuals who have an
HSA, are age 55 or older
and are not enrolled in
Medicare A or B are
qualified to make catch-up
contributions.
Year
2008
2009+
Catch-up Amount
$900
$1,000
-If a husband and wife are both qualified to make catch-up contributions, they can
both do so if they each have an HSA.
-Contributions need not be prorated based on when in the year a person turns 55.
-Catch-up contributions must be prorated if you are not covered by a qualifying
HDHP on December 1st or you do not maintain coverage through December 31st of
the following year.
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How contributions can be made
Contributions to an HSA must be made in “cash”.
(contributions may not be made in the form of stock or other property)
 Through a cafeteria plan (if your employer has one in place)
 Online Contributions (through Internet Banking)
 Recurring or one-time, as needed
 Check
 With Contribution Form tear-off
 With Deposit Ticket
(on each statement or download from website)
 One-time rollovers to HSAs from IRAs
 Some restrictions apply as previously noted
 Rollovers permitted once every 12 months
 MSA to HSA
 HSA to HSA
 Transfers are not limited
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Who can contribute to an HSA?
 Accountholder
Individual
Self-Employed
Employee
 Employer
 Third-party
Family Member
Beneficiary
Friend
State
Government
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Coordinating HSA Contributions
Since both employees and employers can make contributions, it is important to
coordinate in order to avoid excess contributions and tax penalties. The maximum
can be contributed through a combination of sources or a single source as long as
the annual limit is not exceeded.
EMPLOYER
CONTRIBUTIONS
INDIVIDUAL /
EMPLOYEE
CONTRIBUTIONS
IRA Transfers
≤
HSA
Contribution
Limits
Up to the IRS determined
maximums
For 2008:
$2,900 single
$5,800 family
For 2009:
$3,000 single
$5,950 family
*If an individual has HSA accounts with different administrators, all
contributions count toward the annual contribution maximum.
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Employer’s Comparable
Contributions
 Comparability testing period based on a calendar year
and determined on a monthly basis. Testing based on
contributions to employees covered under the
employer’s HDHP. There is a 35% penalty for failing to
meet comparable contribution requirements.
 Note: The employer must make comparable contributions for
all employees with HDHPs who open HSAs under the
employer’s plan. Contact the IRS to determine the
requirements for employees who have an HSA-Compatible
health plan but have not opened an HSA by December 31st.
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Exceptions to the
Comparability Rule
Exceptions
Due to new legislation, employers may contribute more for
employees who are non-highly-compensated employees (nonHCEs) as long as contributions compare within employment
categories. Non-HCEs are defined under Internal Revenue
Code §414 (q).
Comparability rules do not apply to employer contributions
made through a Section 125 cafeteria Plan.
Employers may make matching contributions through a
Section 125 Cafeteria Plan (Non-Discrimination rules apply).
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Comparable Contributions Example
Family
Single /
Full-Time
HCE
NonHCE
Deductible
$1200
Same
Dollar
% of
Deductible
Self + One /
Full-Time
HCE
NonHCE
$1200
$2500
$100
$200
50%
$600
75%
$900
Self + Two /
Full-Time
Self + Three /
Full-Time
HCE
NonHCE
HCE
NonHCE
$2500
$2500
$2500
$2500
$2500
$150
$250
$175
$275
$200
$300
25%
$625
30%
$750
50%
$1250
60%
$1500
75%
$1875
80%
$2000
*Employer may contribute up to the maximum amount as determined by the IRS, $2900 for
individual coverage and $5800 for family coverage for 2008 and $3,000 for individual and
$5,950 for family for 2009.
**Apply the same concept for part-time employees within each category
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When can distributions be taken
from an HSA?
 HSA dollars can always be used to pay for qualified
expenses on a tax-free basis, regardless of age or
healthcare coverage
 If HDHP coverage ends, contributions cannot be made to an HSA,
but distributions to pay for qualified expenses are always allowed.
 If reimbursing expenses from previous years, sufficient records
must be maintained to prove the expense was not previously
reimbursed.
 HSA dollars can be withdrawn for any non-qualified
expense prior to age 65, subject to a 10% penalty and
regular income tax.
 After age 65, withdrawals can be made to pay for any
non-qualified expense, subject to regular income tax.
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What are Qualified Expenses?
A Qualified Expense is generally any expense incurred to maintain
an individual’s health or the health of their family, including:






Doctor and hospital visits
Medical equipment
Dental care, braces, dentures
Vision care, glasses & contacts
Medications, including certain over-the-counter versions
Transportation costs associated with healthcare
*A definition of Qualified Medical Expense is provided in Section 213(d) of Internal
Revenue Code. A list of eligible medical expenses can be found in IRS Publication 502.
Check with your tax advisor about expenses not on the list. For more information, visit
www.hsabank.com.
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Negotiating Payments
Negotiate Payments With Healthcare Provider
$300
$100
$200
Negotiate
Payments
Pay
Monthly
$200
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Other eligible medical expenses
 Premiums for long-term care insurance
 Limited to amount listed in 213(d)(10)
 Premiums for "COBRA”
 Premiums for coverage while receiving
unemployment compensation
 Premiums for individuals over age 65
 Retirement Health Benefits
 Medicare Premiums
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Additional Health Plan Guidelines
 Plans cannot provide benefits before the
deductible is met, except for preventive care,
permitted insurance, or permitted coverage
*Contact your health plan representative to determine if a plan is a
qualifying HDHP.
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What preventive care benefits
can a plan offer?
 Periodic health evaluations
 Routine prenatal and well-child care
 Immunizations
 Tobacco cessation programs
 Obesity weight-loss programs
 Screening services
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What benefits are not considered
Preventive Care?
 Generally, preventive care does not include
any service or benefit intended to treat an
existing illness, injury, or condition.
“Preventive care” for purposes of establishing
an HSA are determined by the IRS, rather than
state law.
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What other kinds of coverage may
an individual have with an HSA?
Insurance Coverage
 Accidents
 Disability
 Dental care
 Vision care
 Long-term care
 Specified disease or illness
 Insurance that pays a fixed
amount/day of hospitalization
Other Coverage (Non-Insurance)
 Employee Assistance Plan
 If it does not provide
significant benefits
 Self-funded worker’s
compensation
 Discount or pre-negotiated
pricing cards
 Cafeteria Plan
 FSAs must be designed
for only specified
coverage such as dental
+ vision
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HSAs, HRAs, FSAs
HSA
HRA
FSA
Account
owner
Employee
Employer
Employee
Funding
Employee,
Employer, Other
Employer
Employee,
Possible Employer
Roll over yearto-year
Yes
Generally
No
No
Portable
Yes
Generally
No
No
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How HSAs & FSAs
Can Work Together
 Limited Purpose FSA (can have with an HSA)
 Pay for dental and vision expenses without having to use HSA funds
 Health FSA (cannot normally have at the same time as an HSA)
 Extension provides 2.5 months beyond the end of the plan year to use FSA funds
 Recent legislation allows employees to contribute to HSAs during the extension if
their FSA balance is zero during that time or the total FSA balance is transferred to
an HSA.
Example of when HSA contributions can be made if an individual still has a Health FSA.
This assumes that the FSA plan is not renewed after the extension.
Jan.
Jan. – Dec. Plan
March 15th extension
May –April Plan
July 15 extension
Feb. March April May June July
Aug.
Sept.
Oct.
Nov.
Dec.
$0 bal. Jan. 1-March 15
$5 bal. Feb. 6th, $0 bal. Feb 7th
$0 bal. May 1-July 15
$32 bal. May 2nd
Plan Year
Eligible to contribute to HSA
NOT Eligible to contribute to HSA
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How HSAs & HRAs
Can Work Together
 Three types of HRAs you can have with an HSA
 Post deductible HRA—pays for out-of-pocket expenses
after the HDHP deductible has been met
 Retirement HRA—Designated for medical expenses after
retirement
 Suspended HRA—Cannot make contributions or take
distributions from the HRA while contributing to the HSA
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Tax Treatment and Advantages for
Employees/Accountholders
 Contributions are either pre-tax through a cafeteria
plan (via paycheck) or tax-deductible
 Earnings
 HSAs grow in the same tax-deferred manner as IRAs
 Interest and investment income are tax-free or tax deferred
 Distributions
 Withdrawals for qualified medical expenses are always taxfree. After age 65, funds may be withdrawn for any reason
without penalty, subject to regular income tax.
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Tax Savings Example
Contribution
$3,000 per year for 25 yrs
Annual Medical Expenses
Tax Bracket
$500 per year
28% (Federal)
5% (State)
Average Interest Rate
4%
TAX SAVINGS ON CONTRIBUTIONS =
$20,625.00
TAX SAVINGS ON DEFERRED GROWTH =
$13,732.87
ACCOUNT BALANCE AT THE END OF 25 YEARS =
$104,114.77
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Tax Treatment and Advantages
for an Employer
 Treated as employer-provided coverage for
medical expenses under an accident or health plan
 Excludable from gross income
 Not subject to withholding for income tax
 Not subject to other employment taxes
 (i.e., Social Security and Medicare taxes (FICA), federal
unemployment tax (FUTA), or the Railroad Retirement
Tax Act)
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Are HSAs changing spending behavior?
Increased Consumerism in Healthcare
(Research results from McKinsey & Co., June 2005)
Consumer-directed health plan holders were more
value conscious and attentive to wellness &
prevention and therefore:
50% more likely to ask about costs
30% more likely to get an annual exam
25% more likely to engage in healthy behaviors
20% more likely to comply with treatment regimens
3 times more likely to choose less expensive options
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Are HSAs changing spending behavior?
Based on HSA Bank’s customer base of over
186,000 accounts as of December 31, 2007
 96.5% of all open accounts rolled over funds from 2007 to 2008
 On average, accounts rolled $2,163 into 2008
 Average contribution per month = $214
 Average distribution per month = $173
 Average monthly savings = $41
 Nearly 18% of accountholders saved all contributed funds and
rolled over an average balance of $4,013 into 2008.
 More than a third of accountholders saved at least 50% of their
2007 contributions.
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Thank you for considering…
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