Considering a Health Savings Account? Health Savings Account?
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Considering a Health Savings Account? Health Savings Account?
2 Basic HSA Plan Concept Part 1: High Deductible Health Plan Part 2: Health Savings Account Made by: Employer, Employee, and/or other party. HSA Concept Pays for small expenses until deductible is met. Intended to cover serious illness or injury For 2006SingleFamily Minimum Deductible* $1,050$2,100 Max. Out of Pocket** $5,250$10,500 For 2006SingleFamily Max Contribution Up to deductible $2,700$5,450
3 Basic HSA Concept Compare to IRA Contributions Earnings Tax-Deferred Growth Tax-Deductible / Pre-Tax Contributions Tax-Free Distributions (For Qualified Medical Expenses) HSA Normal Tax* (NON-Medical expenses over age 65) * 10% Tax Penalty for NON-Qualified medical expenses before age 65
4 Are HSAs changing spending behavior? Increased Consumerism in Healthcare (Research results from McKinsey & Co.) Consumer-directed health plan consumers were more value conscious and attentive to wellness & prevention o50% more likely to ask about costs o3 times more likely to choose less expensive option o25% more likely to engage in healthy behaviors o30% more likely to get an annual exam o20% more likely to comply with treatment regimens
5 Account Trends (Based on HSA Bank’s customer base of over 130,000 accounts) 95.9% of all open accounts rolled over funds from 2005 to 2006 On average, accounts rolled over $1582 into 2006 Average contribution per month = $156.78 Average distribution per month = $98.61 Net average per month = $58.17 or 38% saved Nearly 32% save all contributed HSA funds Nearly 51% save at least half of the contributed HSA funds Are HSAs changing spending behavior?
6 HSA Eligibility oCovered by qualified high-deductible health plan (HDHP) oNot covered by any other non-HDHP oNot claimed as a dependent on another person’s tax return. oNot enrolled in Medicare
7 What other kinds of benefits may an individual have with an HSA? Insurance Coverage o Accidents o Disability o Dental care o Vision care o Long-term care o Specified disease or illness o Insurance that pays a fixed amount/day of hospitalization Other Coverage (Non-Insurance) oEmployee Assistance Plan If they do not provide significant benefits oSelf-funded worker’s compensation oDiscount or pre-negotiated pricing cards oCafeteria Plan Health FSAs must be designed for only specified coverage such as dental + vision
8 * Plans may include credit for deductible met in same calendar year under a previous plan. **Deductible ranges are limited by the Maximum Out-Of-Pocket expenses allowed. For 2006SingleFamily Minimum Deductible* $1,050$2,100 Max. Out of Pocket** $5,250$10,500 What is a qualified high-deductible health plan (HDHP)?
9 What is included in Out-of-Pocket Maximum? Included oDeductible oCo-insurance oCo-pays Not Included oMoney or penalties for a service not pre-certified oMoney or penalties for non-network providers oAmounts over the usual, customary, & reasonable amounts oAmounts for ineligible expenses
10 Additional Health Plan Guidelines oPlans cannot provide benefits before the deductible is met, except for preventive care, permitted insurance, or permitted coverage
11 What preventive care benefits can a plan offer? oPeriodic health evaluations oRoutine prenatal and well-child care oImmunizations oTobacco cessation programs oObesity weight-loss programs oScreening services
12 What benefits are not considered Preventive Care? oGenerally, preventive care does not include any service or benefit intended to treat an existing illness, injury, or condition o“Preventive care” for purposes of establishing an HSA are determined by the IRS, rather than state law.
13 Health Plans NOTE: HSA Bank™ is not in the insurance business. To determine if a specific plan qualifies, contact your health plan representative.
14 $2,700$5,450 Contribution Cap for 2006 100% $2,700 $5,450 Contribution Guidelines for 2006 Up to 100% of deductible* Contributions are pro- rated for the number of full months the HDHP was in force. Contributions can be made at any time during the contribution year until the tax return due date (April 15 cut-off). How much may be contributed to an HSA?
15 What is the catch-up contribution? Individuals, and/or their spouses, over the age of 55 and not enrolled in Medicare can make catch- up contributions. YearCatch-up Amt. 2006$700 2007$800 2008$900 2009+$1,000 Note: If a husband and wife are covered by a HDHP and both are over the ages of 55 and not enrolled in Medicare, they can both contribute the additional catch-up contribution if they each open an HSA.
16 Who contributes to my HSA? oAccountholder (Individual, Self-Employed, Employee) oEmployer oThird-party (on behalf of accountholder) Family Member, Beneficiary, Friend State Government
17 How contributions can be made oContributions to an HSA must be made in “cash”. For example, contributions may not be made in the form of stock or other property. oContributions to the HSA can be made through a cafeteria plan. oRollovers are permitted once per year MSA to HSA HSA to HSA oTransfers are not limited
18 Employer 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 employers HDHP. Note: If the employer contributes to an employees HSA for an employee that is not covered under the employers plan, the employer must make comparable contributions to all employees with HDHPs Single / Full-Time Family / Full-Time Single / Part-time Family / Part-time Deductible $1,000$2,000$1,000$2,000 Same Dollar $100 $50 % of Deductible 50% or $500 50% or $1,000 25% or $250 25% or $500
19 Employers Comparable Contributions Exceptions oComparability rules do not apply to employer contributions made through a Section 125 cafeteria Plan. oEmployers may make matching contributions through a Section 125 Cafeteria Plan (Non-discrimination rules apply)
20 Coordinating HSA Contributions EMPLOYER CONTRIBUTIONS HSA Contribution Limits Up to 100% of deductible with maximum of $2,700 for single and $5,450 for family coverage. ≤ INDIVIDUAL / EMPLOYEE CONTRIBUTIONS Since both employees and employers can make contributions, it is important to coordinate contributions to avoid excess contributions and tax penalties.
21 Tax treatment of HSAs for employees/accountholders oPre-tax Contributions are deducted from accountholder’s federal taxable income oEarnings HSAs grow in the same tax-deferred manner as IRAs oDistributions Withdrawals can be made for medical expenses tax-free. After age 65, funds may be withdrawn for any reason without penalty and medical expenses remain tax-free
22 Tax Savings Example Contribution$3,000 per year for 25 yrs Annual medical expenses$500 per year Tax Bracket28% (Federal) 5% (State) Average interest rate3% TAX SAVINGS ON CONTRIBUTIONS = $24,750.00 TAX SAVINGS ON DEFERRED GROWTH = $9,453.89 ACCOUNT BALANCE AT THE END OF 25 YEARS = $91,148.16
23 What is the tax treatment of employer contributions to an individual’s HSA? oTreated as employer-provided coverage for medical expenses under an accident or health plan oExcludable from gross income oNot subject to withholding for income tax oNot subject to other employment taxes (i.e., Social Security and Medicare taxes (FICA), federal unemployment tax (FUTA), or the Railroad Retirement Tax Act)
24 HSAs, HRAs, FSAs HSAHRAFSA Account owner EmployeeEmployerEmployee Funding Employee, Employer, Other Employer Employee, Possible Employer Rollover year- to-year Yes Generally No No PortableYes Generally No No
25 Advantages of an HSA To an Employer oEmployee owned funds promote increased involvement in health care decisions Spend health care dollars more wisely Encourages employees to ‘shop around’ based on quality of care and price oProvides employers and employees with tax benefits oHSAs allow “matching” contribution options by employers and employees
26 Advantages of an HSA To an Employee oIncreased consumer choice oFunds rollover year to year, eliminating the “use it” or “lose it” philosophy oTax benefits on the contributions, earnings, and distributions Increases take home pay oLong-term investment opportunity oPortability
27 How HSAs/HRAs/FSAs can work together oHSA Limited Purpose FSA oPay for dental and vision expenses without having to use HSA funds oFSA Extension Provides 2.5 months beyond the end of the plan year to use FSA funds Post Deductible HRA
28 When may I take distributions from my HSA? oYour HSA dollars can be taken at any time to pay for qualified expenses. Note: If reimbursing expenses from previous years, you must maintain sufficient records to prove the expense was not previously reimbursed.
29 What are Qualified Expenses? oA Qualified Expense is generally any expense incurred to maintain your health or your family’s health oA complete listing provided in Section 213d of IRS Ruling
30 Other eligible medical expenses oPremiums for long-term care insurance Limited to amount listed in 213(d)(10) oPremiums for "COBRA” oPremiums for coverage while receiving unemployment compensation oPremiums for individuals over age 65 Retirement Health Benefits Medicare Premiums