Considering a Health Savings Account?. 2 HSA (Health Savings Account) Eligibility Covered by a qualified high-deductible health plan (HDHP) Not covered.
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Presentation on theme: "Considering a Health Savings Account?. 2 HSA (Health Savings Account) Eligibility Covered by a qualified high-deductible health plan (HDHP) Not covered."— Presentation transcript:
2 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.
3 * 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. What is a qualified high-deductible health plan (HDHP)? For 2008SingleFamily Minimum Deductible* $1,100$2,200 Max. Out of Pocket** $5,600$11,200 For 2009SingleFamily Minimum Deductible* $1,150$2,300 Max. Out of Pocket** $5,800$11,600
4 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 Intended to cover serious illness or injury Can pay for eligible expenses not covered by the health plan For 2008 SingleFamily Min. Deductible $1,100$2,200 Max. Out of Pocket $5,600$11,200 For 2009 SingleFamily Min. Deductible $1,150$2,300 Max. Out of Pocket $5,800$11,600 For 2008SingleFamily Max. Contribution $2,900$5,800 For 2009 SingleFamily Max. Contribution $3,000$5,950
5 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
6 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
7 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
8 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-qualified expenses over age 65) * 10% Tax Penalty for Non-Qualified medical expenses before age 65
9 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 15 th 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)
10 Prorating Provision If HDHP coverage begins after January 1 st in a given year, contributions no longer need to be prorated as long as qualifying HDHP coverage continues through December 31 st 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.
11 Prorating Examples *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.) Type of Coverage Coverage Begins Coverage Ends Allowed Contribution 2008 Allowed Contribution 2009 Individual1/1/200812/31/2008$2,900 (2008 Max)$0 Individual7/1/200812/31/2009$2,900 (2008 Max)$3,000 (2009 Max) *Individual7/1/20084/1/2009$1,450 (6/12 of 2008 Max)$750 (3/12 of 2009 Max) *Individual11/1/200811/1/2009$483 (2/12 of 2008 Max)$2,500 (10/12 of 2009 Max)
12 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.
13 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 HRA and Health FSA Rollover: Employer Role
14 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 non- calendar year plans.
15 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. YearCatch-up Amount 2008$900 2009+$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 1 st or you do not maintain coverage through December 31 st of the following year.
16 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 (on each statement or download from website) With Deposit Ticket 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
17 Who can contribute to an HSA? Accountholder Individual Self-Employed Employee Employer Third-party Family Member Beneficiary Friend State Government
18 Coordinating HSA Contributions EMPLOYER CONTRIBUTIONS ≤ INDIVIDUAL / EMPLOYEE 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. IRA Transfers *If an individual has HSA accounts with different administrators, all contributions count toward the annual contribution maximum. 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
19 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 31 st.
20 Exceptions to the Comparability Rule Exceptions Due to new legislation, employers may contribute more for employees who are non-highly-compensated employees (non- HCEs) 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).
21 Comparable Contributions Example Family Single / Full-Time Self + One / Full-Time Self + Two / Full-Time Self + Three / Full-Time HCE Non- HCE Non- HCE Non- HCE Non- HCE Deductible$1200 $2500 Same Dollar$100$200$150$250$175$275$200$300 % of Deductible 50% $600 75% $900 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
22 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.
23 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.
25 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
26 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.
27 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
28 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.
29 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
30 HSAs, HRAs, FSAs HSAHRAFSA Account owner EmployeeEmployerEmployee Funding Employee, Employer, Other Employer Employee, Possible Employer Roll over year- to-year Yes Generally No No PortableYes Generally No No
31 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. Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. Jan. – Dec. Plan March 15 th extension May –April Plan July 15 extension $0 bal. May 1-July 15 $0 bal. Jan. 1-March 15 $5 bal. Feb. 6 th, $0 bal. Feb 7th $32 bal. May 2 nd Eligible to contribute to HSA NOT Eligible to contribute to 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. Plan Year
32 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
33 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 tax- free. After age 65, funds may be withdrawn for any reason without penalty, subject to regular income tax.
34 Tax Savings Example Contribution$3,000 per year for 25 yrs Annual Medical Expenses$500 per year Tax Bracket28% (Federal) 5% (State) Average Interest Rate4% 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
35 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)
36 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
37 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.