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Considering a Considering a Health Savings Account?Health Savings Account?
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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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*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 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
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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 Single Family
Min. Deductible $1,100 $2,200
Max. Out of Pocket $5,600 $11,200
For 2009 Single Family
Min. Deductible $1,150 $2,300
Max. Out of Pocket $5,800 $11,600
For 2008 Single Family
Max. Contribution $2,900 $5,800
For 2009 Single Family
Max. Contribution $3,000 $5,950
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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 ConceptCompare to IRA
Contributions
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
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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
*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 ofCoverage
Coverage Begins
Coverage Ends
Allowed Contribution2008
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)
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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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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
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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 non-calendar 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 Catch-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 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 (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
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Who can contribute to an HSA?
Accountholder IndividualSelf-EmployedEmployee
Employer
Third-party Family
MemberBeneficiaryFriend State
Government
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Coordinating HSA Contributions
EMPLOYERCONTRIBUTIONS
≤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
LimitsUp to the IRS determined
maximums
For 2008:
$2,900 single$5,800 family
For 2009:$3,000 single$5,950 family
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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
ExceptionsDue 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).
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Comparable Contributions Example
Family
Single / Full-Time
Self + One / Full-Time
Self + Two / Full-Time
Self + Three / Full-Time
HCENon-HCE HCE
Non-HCE HCE
Non-HCE HCE
Non-HCE
Deductible$120
0 $1200 $2500 $250
0 $2500 $2500 $2500 $2500
Same Dollar $100 $200 $150 $250 $175 $275 $200 $300
% ofDeductible
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
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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
Negotiate Payments
PayMonthly
$200$100$300
$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 evaluationsRoutine prenatal and well-child care ImmunizationsTobacco cessation programsObesity weight-loss programsScreening 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 FSAAccount owner
Employee Employer Employee
FundingEmployee, Employer,
OtherEmployer
Employee,Possible
Employer
Roll over year-to-year
YesGenerally
NoNo
Portable YesGenerally
NoNo
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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.
Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
Jan. – Dec. Plan March 15th extension
May –April Plan July 15 extension
$0 bal. May 1-July 15
$0 bal. Jan. 1-March 15
$5 bal. Feb. 6th, $0 bal. Feb 7th
$32 bal. May 2nd
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
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How HSAs & HRAs Can Work Together
Three types of HRAs you can have with an HSAPost deductible HRA—pays for out-of-pocket
expenses after the HDHP deductible has been metRetirement HRA—Designated for medical expenses
after retirementSuspended 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
tax-free. 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 $500 per year
Tax Bracket 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 incomeNot subject to withholding for income taxNot 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 costs30% more likely to get an annual exam25% more likely to engage in healthy behaviors20% more likely to comply with treatment
regimens3 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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