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By: James G. Knight MD Last Revised 4/21/2008 “Page Down” to Advance The Cornerstone of Consumer Directed Health Care Health Savings Accounts (HSAs)

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Presentation on theme: "By: James G. Knight MD Last Revised 4/21/2008 “Page Down” to Advance The Cornerstone of Consumer Directed Health Care Health Savings Accounts (HSAs)"— Presentation transcript:

1 By: James G. Knight MD Last Revised 4/21/2008 “Page Down” to Advance The Cornerstone of Consumer Directed Health Care Health Savings Accounts (HSAs)

2 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit 2003 Medicare Modernization Act Created Health Savings Accounts  First: A special Qualifying High Deductible Health Insurance Plan (HDHP)A special Qualifying High Deductible Health Insurance Plan (HDHP)  Second: A Tax-preferred Health Savings AccountA Tax-preferred Health Savings Account Actually Two Related Components:

3 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit HSA Eligible Individual  You have a qualifying high deductible health plan (HDHP) on the first day of the month.  You have no other health coverage except what is permitted under Other health coverage (see IRS Pub. 969).  You are not enrolled in Medicare.  You cannot be claimed as a dependent on someone else’s 2008 tax return.

4 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit HSA Qualifying Insurance (HDHP) Requirements : 2008 Individuals Federally Mandated  Deductible: Between $1,100 and $5,600  Maximum Annual Out-of-Pocket Expense Limit: In network can be as high as $5,600In network can be as high as $5,600 May have different limits out of networkMay have different limits out of network Maximums COLA adjusted annuallyMaximums COLA adjusted annually  HDHP covers in network expenses: Above the deductible (coinsurance may apply)Above the deductible (coinsurance may apply) Above the out-of-pocket limit (100%)Above the out-of-pocket limit (100%)

5 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit HSA Qualifying Insurance (HDHP) Requirements: 2008 Family (more than one person) Federally Mandated  Deductible: Between $2,200 and $11,200  Maximum Annual Out-of-Pocket Expense Limit: In network can be as high as $11,200In network can be as high as $11,200 May have different limits out of networkMay have different limits out of network Maximums COLA Adjusted AnnuallyMaximums COLA Adjusted Annually  HDHP covers in network expenses: Above the deductible (coinsurance may apply)Above the deductible (coinsurance may apply) Above the out-of-pocket limit (100%)Above the out-of-pocket limit (100%)

6 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Additional HSA Qualifying Insurance (HDHP) Requirements  In general, insurance must not cover expenses below the deductible except: Certain preventive care services may be allowed under the deductible (see IRS Bulletin )Certain preventive care services may be allowed under the deductible (see IRS Bulletin )IRS Bulletin IRS Bulletin Until January 1, 2006 certain prescription drug benefit riders will be permitted (see IRS Bulletin )Until January 1, 2006 certain prescription drug benefit riders will be permitted (see IRS Bulletin )IRS Bulletin IRS Bulletin

7 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Health Savings Accounts: Contributions (2008)  Eligible Individuals and Families may contribute, on a tax-free basis, up to: –Individuals: $2,900 –Families: $5,800 –Limits undergo annual COLA adjustments

8 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Health Savings Accounts: Contributions  “Catch Up” provision: Age 55 to Medicare eligibility, each spouse may contribute to his or her HSA an additional:Age 55 to Medicare eligibility, each spouse may contribute to his or her HSA an additional: $800 per year in 2007$800 per year in 2007 $900 per year in 2008$900 per year in 2008 $1,000 per year in 2009 and thereafter$1,000 per year in 2009 and thereafter  Both employers and employees may contribute (up to the legal limits).

9 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Health Savings Accounts: Contributions  Like IRAs: Investment income compounds on a tax-free basis.Investment income compounds on a tax-free basis. Funds carry over tax-free from year to year.Funds carry over tax-free from year to year.  Unlike IRAs Contributions are not phased out with increasing Adjusted Gross IncomeContributions are not phased out with increasing Adjusted Gross Income Can be made in addition to 401K and IRA contributions.Can be made in addition to 401K and IRA contributions.

10 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Health Savings Accounts: Distributions  If used to pay for qualified medical expenses or long term care insurance: Always tax and penalty free.Always tax and penalty free. May be withdraw at any time for these purposes (even years later)!May be withdraw at any time for these purposes (even years later)!

11 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Health Savings Accounts: Distributions Not Used To Reimburse Qualified Health Care Expenses  Under age 65 are: Taxed as incomeTaxed as income Plus a ten percent (10%) penalty.Plus a ten percent (10%) penalty.  If 65 or older: Taxed as incomeTaxed as income But No penalty.But No penalty.

12 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Value of Tax Deduction Versus Individual Spending Not Including any State or Local Tax Savings! Tax Benefit for the Maximum Contribution in an “Average” Tax Bracket

13 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Value of Tax Deduction Versus Family Spending Census Bureau Not Including any State or Local Tax Savings!

14 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Investment Strategies DDDDistributions are not required at the time an expense is incurred! PPPPaying for expenses from a non-HSA account while deferring reimbursement allows for more rapid growth of the tax-free Health Savings Account balance. Reproduced with permission: Doctors Club of San Diego, Inc.

15 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Family Deferred Versus Immediate Reimbursement

16 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit $5,800 annual HSA contribution$5,800 annual HSA contribution 8% Average annual rate of return8% Average annual rate of return $1,200 Annual & Dental Health Care Spending$1,200 Annual & Dental Health Care Spending Health Savings Account Scenario 2008 Healthy Family (Healthiest 90% with 2.6 persons on average per family)

17 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Investment Goal? It is possible to grow one’s HSA to the point where annual interest income exceeds annual maximum out-of-pocket expenses Fireproof!

18 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Where Can the money for Health Savings Account Contributions Come From?

19 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Reversing the Incentives? Rand Corporation: R-3476-HHS Should Reduced Insured Spending (& Lower Premiums?) By At Least 64%! 2005 Increase Deductibles Significantly… A Behavioral reduction in Total Spending Arithmetic reduction in Insured Spending plus

20 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit 2006 Cost of 1 st Dollar Coverage (HMO or other coverage that pays for day-to-day care as well as major illnesses and injury) Average employee health benefit ~$8,222* *Calculated based on historic national estimates and the ** Kaiser Foundation 2006 Employer Health Benefits Report ( $4,242 individuals - $11,480 families**)

21 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit ~$4,522 HSA Premium Convert to high deductible HSA ~$3,190 HSA Premium No Behavioral Reduction 30% Behavioral Reduction $8,222 Annual Premium $8,222 Annual Premium * *Calculated based on 2005 Estimate from Hewitt Associates & 2006 Kaiser Family Foundation Employer Health Benefit Report Consumer Directed Health Care ~$3,700 Savings + ~$5,032 Savings +

22 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Consumer Directed Health Care ~$3,700 Premium Savings Health Reimbursement Arrangement Rolls Over Tax FreeRolls Over Tax Free Employer OwnedEmployer Owned Accrues Income???Accrues Income??? Employer Must:Employer Must: MaintainMaintain ReportReport SubstantiateSubstantiate Doesn’t Roll OverDoesn’t Roll Over Use it or Loose itUse it or Loose it No Income?No Income? Employer Must:Employer Must: MaintainMaintain ReportReport SubstantiateSubstantiate Flexible Spending Account Rolls Over Tax FreeRolls Over Tax Free Employee ownedEmployee owned Accrues TF IncomeAccrues TF Income Employee:Employee: MaintainsMaintains ReportsReports SubstantiatesSubstantiates For Any Use After 65For Any Use After 65 Health Savings Account Becomes an Employer’s Tax Free Contribution to An Employee’s…

23 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Employer contribution should exceed annual employee expenditures ~90% of the time Catastrophic Insurance Pays the Really Big Bills! Day to day care is now completely FREE on a tax-free basis up to the amount the employer contributes The vast majority will have money left over each year that rolls over tax-free (along with interest income) for future health or retirement needs! Premium Savings Now Become Tax-Free HSA Contributions

24 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Insurance Savings used as Potential Employer Contributions: Potential Employer Contribution: ~ $3,750

25 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Increased Purchasing Power  With HSAs, 100% of the dollar is now available to purchase services. (No intermediary overhead: 15.4% of premium)  Virtually all qualifying plans give consumers access to the insurer’s discounted rates (PPOs)  Cash discounts range from 5% to 55%

26 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit What About High Utilizers?  Very few people actually “live” in the high utilization part of the curve.  High deductible health insurance functions as a stop loss for the HSA/ HRA as an investment.

27 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Catching Up With Expenses A Worst Case Scenario ?  At thirty (30) years  A $5,800 annual contribution each and every year  8% average annual rate of return  $6,000 Out-of-Pocket each and every year Year HSA Balance with No Prior Distributions Accumulated Medical Expenses Balance in HSA after Reimbursing Accumulated Expenses 30$709606($180,000)$529,606

28 By: James G. Knight MD Revised 4/21/2008 All Rights Reserved: CDHC, Inc. “Click” or Press “space key” or “Page Down” to Advance “Esc” to Quit Thank You ! James G. Knight MD CEO & Founder, CDHC Inc. Health Savings Accounts Consumer Directed Health Care


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