1. Consumer Choices for Self-Directed Health Care 1 CE credit
Introduce yourself and how long you have been in the industry.
In today’s course we will
Discuss Consumer-Driven Health Care (CDHC)
Review Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), Health Flexible Savings Arrangements (Health FSAs).
Monica Rundell, National Sales Manager | New York Course Approval #xxxxxx | New Jersey Course Approval #xxxxxx
This CE Class is administered by Compass Resources, Inc., an approved Education Provider in this state.

2. Employers’ Perspective
The Challenge: Affordable Health Care
The Solution: Consumer-Driven Health Plans
Employers continue to look for ways to deal with rising health care costs
Employers recognize that employees expect them to provide comprehensive health care benefits
Employers understand that providing affordable health care plays a key role in their ability to attract and retain good employees
Employers acknowledge that keeping employees healthy and productive makes good business sense
Employers are turning to Consumer-Driven Health Plans (CDHP) - also known as High Deductible Health Plans (HDHP)
Employers experience reduced health care costs, while retaining affordable health care benefits for their employees

3. Employees’ Perspective
The Response: Consumer engagement
Consumers are willing to trade lower premiums for higher health plan deductibles
Consumers become more engaged in their health and their care since they pay from their own pocket first
Consumers give more consideration to their health-related decisions
Consumers may pay out-of-pocket expenses from a tax-advantaged health account

4. Advantages of Consumer-Driven Health Plans
Help lower premium cost and provides tax advantages for both employer and employee
Increase plan choice and flexibility
Provide a more attractive and overall long-term health care strategy
Engage employees in getting more involved in health care decisions
Employee education is critical. Efforts should include:
How CDHPs work
What are tax advantages
How to make wise health care decisions
Benefits of Consumer-Driven Health Plans (high deductible plans):
Provides tax savings: Employer contributions are generally tax deductible and made with pre-tax dollars
Lowers premiums: Significantly lower premiums when employees opt for a high-deductible plan, along with an HRA or HSA (compared to traditional plans)
Increases plan choice and flexibility: More choice means greater flexibility in providing for health care options for your employees
Provides a more attractive and overall long term health care strategy
CAVEAT: Employees may be slow to understand and adopt CDHPs, so education is key.

5. Growth of Consumer-Driven Health Plans
What percent of employers offered a CDHP in 2015?
41% A
54% B
73% C
85% D C
Answer
73%
Source: th Annual Towers Watson Employer Survey on Purchasing Value in Health Care

6. Options to Help Save and Pay for Health Care
Health Savings Accounts (HSAs)
Health Reimbursement Arrangements (HRAs)
Health Flexible Spending Arrangements (FSAs)
Let’s see how they compare
Health Flexible Spending Arrangement is the correct name for Flexible Spending Accounts.

7. Health Savings Accounts (HSAs)

8. HSA: Definition
HSAs
A health savings account is a tax-exempt trust or custodial account set up by an individual with a qualified HSA trustee to pay or reimburse qualified medical expenses

9. A B D C C HSA: Eligibility
HSAs
To be eligible to participate in an HSA, individuals must:
Have more than one health plan A
Be enrolled in Medicare B
Be covered by a qualified high deductible health plan (HDHP) that meets federal requirements C
Be a dependent of someone enrolled in an HSA D
To be an eligible individual and qualify for an HSA, the following requirements must be met. The individual must:
be covered under a qualifying high deductible health plan (HDHP).
have no other health coverage except what is permitted by the IRS.
Individuals with certain limited benefit policies (accident-only, dental, vision, workers’ comp, disability, or long-term care) may still be eligible for an HSA.
not be enrolled in Medicare.
not be claimed as a dependent on someone else's tax return.
(Self-employed and unemployed individuals can qualify for an HSA if they meet the above criteria.)
Be covered by a qualified high deductible health plan (HDHP) that meets federal requirements C
Answer

10. HSA: Requirements HSAs Minimum Deductibles:
Maximum Out-of-Pocket Amounts:
Maximum Annual Contribution (from all sources):
Individual coverage: $1,300
Family coverage: $2,600
Individual coverage: $6,550
Family coverage: $13,100,
- Change due to ACA, no individual in the family can have an out-of-pocket maximum (OOPM) greater than $6,850 (2016).
Individual coverage: $3,350
Family coverage: $6,750
Individuals age 55 or older may deposit an additional $1,000 catch-up contribution each year
Minimum Deductibles:
In order for an HSA to be paired with a consumer-driven health plan, HDHP must meet certain minimum deductible requirements.
The IRS sets the guidelines every year. For 2016 the CDHP minimum deductible has remained the same — at least $1,300 for individual coverage and $2,600 for family coverage.
Maximum Out-of-Pocket Amounts:
In order for an HSA to be paired with a high deductible health plan, HDHP must meet certain maximum out-of-pocket requirements.
The IRS sets the guidelines every year. For 2016 the CDHP out-of-pocket maximums have increased — $6,550 for individual coverage and $13,100 for family coverage.
Maximum Annual Contributions:
Any eligible individual can contribute to an HSA (however, tax benefits stay with account holder).
For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year.
For an HSA established by a self-employed or unemployed individual, the individual can contribute.
Family members or any other person may also make contributions on behalf of an eligible individual.
Individuals age 55 or older may deposit an additional $1,000 catch-up contribution each year.
•Contributions to an HSA must be made in cash. Contributions of stock or property are not allowed.
•If an individual has more than one HSA, the total contributions to all the HSAs cannot be more than the annual limit as established by the IRS
*Contributions may be made only while the individual meets the eligibility requirements, however the HSA can be used for distributions even if the account holder is no longer HSA eligible.
*The HSA account holder can claim a tax deduction for all contributions to their HSA, from all sources except those from their employer. *.

11. HSA: Tax Benefits HSAs Tax-Free Tax-Free Contribution Tax Benefits:
Distribution Tax Benefits:
Account holders can deduct their HSA contributions (individual and family) from their federal income taxes*
Employer contributions to an HSA are not taxable income
Employer contributions are not subject to FICA withholding
IRS allows account holders age 55 or older to contribute an additional $1,000 catch-up contribution each year
A one-time rollover from an IRA to an HSA is allowed by the IRS (subject to IRS annual HSA contribution limits)
Account holders can withdraw funds from their HSA to pay qualified medical expenses tax-free
All earnings on HSAs are tax-free
HSA Contribution Tax Benefits (currently taxed in these states: Alabama, California, New Jersey)
The HSA account holder can claim a tax deduction for all contributions to their HSA, from all sources except those from their employer.
Employer contributions are not subject to withholding for Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act.
Only the account holder can deduct HSA contributions made on his/her behalf into the HSA.
HSA Distribution Tax Benefits (currently taxed by New Hampshire and Tennessee)
*Distributions are tax-free if used to pay qualified medical expenses. Funds used for non-qualified medical expenses are subject to income tax and a 20% tax penalty. There is no tax penalty on distributions made after the account holder is disabled, reaches age 65, or dies.
*The interest or other earnings on the assets in the account are tax-free. Each state can decide to follow the federal tax guidelines for HSAs or establish its own. HSA earnings are currently taxed in NH and TN.
(Consult your financial advisor or State Department of Revenue for more information.)
*Each state can decide to follow the federal tax guidelines for HSAs or establish its own.

12. HSA: Qualified Medical Expenses
HSAs
Qualified Medical Expenses: (Advance payment for future medical care)
Expenses may be incurred by:
Office visits (including deductibles and co-insurance)
Chiropractic services
Medicines: prescription drugs, over-the-counter medication (with prescription), insulin
Dental expenses
Eye glasses, contact lenses, and solutions, as well as eye surgery (even Lasik)
The covered individual and his/her spouse
All dependents claimed by the covered individual
Qualified Medical Expenses:
A list of qualified expenses is available on the IRS website, in IRS Publication 502, “Medical and Dental Expenses,” or can be ordered directly from the IRS at TAX-FORM. Section 213(d) of the IRS Code. Account holders can also call the IRS Helpline at for individual tax questions.
You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. You do not have to make distributions from your HSA each year.
Expenses incurred before the HSA is established are not qualified medical expenses. State law determines when an HSA is established.
Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. These are explained in Publication 502, Medical and Dental Expenses, available on the IRS website,
A medicine or drug will be a qualified medical expense for HSA purposes, only if the medicine or drug:
Requires a prescription,
Is available without a prescription (an over-the-counter medicine or drug) and a prescription is obtained for it, or
Is insulin.
The over-the-counter prescription requirement went into effect 1/1/11.
May be incurred by the following:
The covered individual and their spouse.
All dependents claim by the covered individual on his/her tax return.
Any person the covered individual could have claimed as a dependent on the return except that:
The person filed a joint return,
The person had gross income of $4,000 or more, or
The covered individual or spouse if filing jointly, could be claimed as a dependent on someone else's return.

13. HSA: Premiums, Rollover and Portability
HSAs
Paying for Health Premiums: (only in the following circumstances)
Rollover and Portability
COBRA continuation coverage
Health coverage purchased while receiving unemployment compensation
Qualified long-term care insurance
Age 65+, premiums for any health insurance (except Medicare supplemental policies)
Contributions remain in the health savings account from year to year until used
Funds in HSA belong to account holder, even if they change jobs or retire
Account holder can designate a beneficiary to receive funds upon their death
Paying for Health Premiums: You cannot treat insurance premiums as qualified medical expenses unless the premiums are for:
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Long-term care insurance (subject to limits based on age and are adjusted annually).
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
Rollover and Portability:
The contributions remain in the health savings account from year to year until they are used.
An HSA is owned by account holder. The account and any funds in the account belong to account holder even if they change jobs, leave work force or retire.
The account holder can designate a beneficiary to receive the funds upon their death.

14. Enrollment in HSA-Eligible Health Plans
HSAs
How many people are covered by HSA plans?
19.7 million A
15.5 million B
12.7 million C
10 million D A
Answer
19.7 million

15. Health Reimbursement Arrangements (HRAs)

16. HRA: Definition
HRAs
An HRA is an employer owned account with employer contributions to reimburse employees for eligible medical care expenses
HRAs are employer-established benefit plans. These may be offered in conjunction with other employer-provided health benefits.
Employers have flexibility to offer various combinations of benefits in designing their plan.
Employees do not have to be covered under any other health care plan to participate.
Self-employed persons are not eligible for an HRA.
A health reimbursement arrangement (HRA) must be funded solely by an employer. The contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee. Employees are reimbursed tax-free for eligible medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans, including FSAs, however an HRA may make a person ineligible for opening an HSA.

17. A B C D D HRA: Eligibility Who can contribute to an HRA?
HRAs
Who can contribute to an HRA?
Employers and employees A
Employees only B
Dependents only C
Employers only D
Only employers can contribute to the HRA.
There is no limit on the amount of money an employer may contribute to an HRA.
Answer D
Employers only

18. HRA must be set up by an employer, on behalf of employees:
HRA: Requirements
HRAs
HRA must be set up by an employer, on behalf of employees:
Can be paired with any type of health plan (including a consumer-driven plan)
Can be offered in conjunction with a health flexible spending arrangement
Can be offered with other employee benefits the employer provides
PPACA is very limiting on HRAs as a stand-alone account.
An HRA must be set up by an employer on behalf of employees (self-employed individuals are not eligible for an HRA).
Can be established with a consumer-driven health plan for employees OR paired with any type of health plan.
Can be offered in conjunction with a health flexible spending arrangement.
Can be offered with other products the employer decides to provide.
Enable employees to withdraw HRA funds for expenses allowed under the employer’s HRA plan documents.

19. HRA: Tax Benefits HRAs Employee Tax Benefits: Employer Tax Benefits:
Employer contributions to an HRA are generally not treated as taxable income to the employee
Employees can generally spend the funds tax-free
Employer:
Employers are entitled to deduct amount of their contribution.
If account if funded with hard dollars, employers can take immediate deduction.
If the account is funded on a notional basis like a line of credit, the employer can take deduction only when the amounts are actually paid out
Is not taxed on employer contributions to HRA
Can generally spend the funds tax-free
Are entitled to deduct amount of their contribution
Can take immediate deduction (if funded with hard dollars)

20. HRA: Qualified Medical Expenses
HRAs
Qualified Medical Expenses: (Only medical expenses deemed eligible by employer)
Expenses may be incurred by:
Expenses must be incurred on or after the date enrolled in the HRA
IRS allows HRA funds to be used for any item that qualifies as medical expense
However, employers determine what expenses HRA will fund, under their plan
Current employees
Former employees
Spouses/dependent children (under age 27) of covered employees
Spouses/dependents of deceased employees
Qualified Medical Expenses:
The eligible medical expense must be incurred on or after the date enrolled in the HRA.
The IRS allows HRA funds to be used for any item that qualifies as a medical expense under the Internal Revenue Code (except long-term care).
However, employers determine whether employees can use HRA funds for these items OR only for medical expenses under the employer’s benefit plan.
May be incurred by the following:
Current and former employees.
Spouses and dependents of those employees.
Any person you could have claimed as a dependent on your return except that:
The person filed a joint return,
The person had gross income of $4,000 or more, or
You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2012 return.
Children under age 27 at the end of the tax year.
Spouses and dependents of deceased employees.

21. HRA: Premiums, Rollover and Portability
HRAs
Paying for Health Premiums: (only in the following circumstances)
Rollover and Portability
IRS allows use of HRA funds for some health premiums and long-term care
However employers decide whether their employees can use the funds
Employers determine if employees can carryover unused HRA funds year to year
Employers also specify whether or not HRA balances will be forfeited if an employee leaves the job or changes health plans
Former employees who elect COBRA continuation coverage can retain the HRA
Premiums:
IRS rules allow use of HRA funds for some health insurance premiums and long-term care coverage, as long as it is not covered under another health plan and not paid as part of a pre-tax salary reduction plan.
However employers decide whether their employees can use the funds for these purposes.
Rollover and Portability
IRS rules allow employers to determine whether employees can carry over all or a portion of unused HRA funds from year to year. (Employers are not allowed to “refund” any part of an HRA balance to employees.)
IRS rules allow employers to specify in their HRA plan terms whether HRA balances will be forfeited if an employee leaves the job or changes health plans.
However, former employees who elect COBRA continuation coverage can retain access to the HRA and any health plan offered with it. As long as former employees pay COBRA premiums during the COBRA coverage period, they are entitled not only to unused balances from the HRA but also to the same annual employer contribution to the HRA as that provided to current active employees.

22. Health Flexible Spending Arrangements (FSAs)

23. FSA: Definition
FSAs
A health FSA is an employer owned account that reimburses employees for eligible medical expenses
Flexible spending arrangements permit employees to set aside money from their paycheck, before taxes are deducted, into a special account to reimburse themselves for medical coverage that insurance doesn’t cover. The funds must be spent by year-end or the employee loses the remaining funds in the account.
Eligible workers don’t always take advantage of the plans because people are scared of losing funds not spent and because they have to file a reimbursement claim. Plans using debit cards are now appearing to solve the problem of filing paper claims. Also people have to re-enroll every year to participate. Flexible spending arrangements are most commonly set up as part of a Section 125 or Cafeteria Plan.

24. A B C D C FSA: Eligibility Who can contribute to an Health FSA?
FSAs
Who can contribute to an Health FSA?
Employees only A
Employers only B
Both employees and employers C
Employees and their spouse/dependents D
Who can contribute:
Employees contribute to health FSAs by having money withheld from their paychecks each pay period on a pre-tax basis.
Each year, employees designate the amount of money they will contribute to the account in the following year.
The contribution amount can be changed only if there is a change in family status (e.g., birth or adoption of a child) or in employment status, as specified in the employer’s FSA plan documents.
Employers can contribute to employees health FSAs. C
Both employees and employers
Answer

25. FSA: Requirements FSAs
FSA must be set up by an employer, on behalf of employees:
Maximum Annual Contribution:
Cannot be established by self-employed persons
Can be offered with any health insurance / employee benefit, or standalone
Employees: Can contribute $2,550 per year
Employers:
Can elect a lower limit
Can contribute more than the annual limit, if desired
Health FSAs are employer-established benefit plans. These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. Employers have flexibility to offer various combinations of benefits in designing their plan. Persons do not have to be covered under a health plan to participate.
Can only be set up by employers (self-employed persons cannot establish an FSA).
Can be offered in conjunction with any type of health insurance plan or other employer-provided benefits, or they can even be offered on a standalone basis.
Can only be established with an HSA, if it’s in a limited-purpose (vision and dental).
Enable employees to access entire amount designated for the year at any point in the coverage period.

26. FSA: Tax Benefits FSAs Tax-Free Tax-Free Contribution Tax Benefits:
Distribution Tax Benefits:
Employees do not pay federal income tax:
Not on amount they contribute to an FSA
Not on amount their employer may contribute
Pre-tax salary reduction for FSAs
Reduces wages on which Social Security is paid
Reduces wags on which Medicare taxes are paid
Employees do not pay taxes on funds withdrawn from FSAs for eligible medical expenses
Contribution Tax Benefits:
Contributions made by your employer can be excluded from your gross income.
No employment or federal income taxes are deducted from the contributions.
Withdrawals may be tax-free if you pay eligible medical expenses.

27. FSA: Qualified Medical Expenses
FSAs
Qualified Medical Expenses: (Medical, dental and prescription, not covered by insurance)
Expenses may be incurred by:
Incurred during period of coverage
Preventive care (as defined by IRS and specified in employer’s plan documents)
Dental (as defined by IRS and specified in employer’s plan documents)
Expenses are not otherwise covered by health insurance
Prescription drugs, over-the-counter drugs (with prescription) or insulin
Health FSA participant
Spouse
Dependents, including children under age 27
Qualified Medical Expenses:
Eligible medical expenses are those specified in the plan that would generally qualify for the medical and dental expenses deduction.
A medicine or drug will be a qualified medical expense for FSA purposes. only if the medicine or drug:
Requires a prescription,
Is available without a prescription (an over-the-counter medicine or drug) and a prescription is obtained for it, or
Is insulin.
(Over-the-counter medicines or drugs -other than insulin- are not qualified medical expenses for FSA purposes unless they are prescribed.
May be incurred by:
The participant and his/her spouse
All dependents claim by the participant on his/her tax return
Any person the participant could have claimed as a dependent on the return except that:
The person filed a joint return
The person had gross income of $4,000 or more
The participant or spouse could be claimed as a dependent on someone else's return
Child(ren) of the participant under age 27 at the end of the tax year

28. FSA: Premiums, Roll-Over and Portability
FSAs
Paying for Health Premiums:
Rollover and Portability
Health FSA funds cannot be used for:
Health insurance premiums
Long-term coverage or expenses
Amounts covered under health plan
Employees can carryover balances in certain circumstances.
FSAs may be subject to a “Use it-or-Lose it” rule
IRS now offers additional options:
Grace period: 2.5 month grace period, immediately following the end of a plan year
Carryover: Up to $500 to carry forward to the following plan year
Maximum Annual Contribution:
As of 2015, IRS ruled the maximum contribution amount is $2,550 annually.
An employer can elect to allow a lower limit.
The employer’s FSA plan documents must specify a maximum dollar amount or percent of salary that can be contributed to the FSA.
The IRS limit only applies to employee contributions, employers can contribute more than the annual employee limit of $2,550.
Distributions cannot be received from an FSA for the following expenses.
Amounts paid for health insurance premiums.
Amounts paid for long-term care coverage or expenses.
Amounts that are covered under another health plan.
Rollover and Portability:
Flexible spending arrangements are “use-it-or-lose-it” plans. This means that amounts in the account at the end of the plan year cannot be carried over to the next year. However, the plan can provide for:
Grace period: Employers are allowed to give employees up to 2 1/2 months after the end of the plan year. (For example, if the plan year ends December 31, employers may give employees until March 15 to use their health FSA funds from the previous year.) If there is a grace period, any qualified medical expenses incurred in that period can be paid from any amounts left in the account at the end of the previous year. The employer is not permitted to refund any part of the unused balance to the employee.
Carryover: Employers are allowed to give employees up to a $500 carryover into the following year. This option is not available to employers if they offer a grace period. It is also not available for dependent care FSAs.
Employees cannot take health FSAs with them when they retire or leave the company.

29. Rollover/Portability
Summary
HSA
HRA
FSA
Ownership
EE-owned
ER-owned
Requirements
Must be paired with a consumer-driven health plan
Can be paired with any health plan
Can be paired with any health plan / benefit plan - or stand-alone
Tax Benefits
EE can deduct HSA contributions from federal income taxes
EE is not taxed on ER’s HRA contribution and can spend funds tax-free
EE is not taxed on FSA contribution and can fund with pre-tax dollars
Qualified Expenses
Advance payment for medical expenses
ER determines what medical expenses qualify
Medical, dental and prescription expenses not covered by insurance
Rollover/Portability
Yes
Maybe (ER determines)
Maybe (in certain circumstances)

30. Thank you Name, Title Phone Email
Contact information
Name, Title
Phone
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