Considering a Health Savings Account?

Considering a Considering a Health Savings Health Savings Account?Account?

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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

Pays for small expenses until deductible is

met.

Intended to cover serious

illness or injuryFor 2006 Single Family

Minimum Deductible* $1,050 $2,100

Max. Out of Pocket** $5,250 $10,500

For 2006 Single Family

Max Contribution

Up to deductible

$2,700 $5,450

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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-Medical expenses over age 65)

* 10% Tax Penalty for NON-Qualified medical expenses before age 65

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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

o 50% more likely to ask about costso 3 times more likely to choose less expensive

optiono 25% more likely to engage in healthy behaviorso 30% more likely to get an annual examo 20% more likely to comply with treatment

regimens

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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?

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HSA Eligibility

o Covered by qualified high-deductible health plan (HDHP)

o Not covered by any other non-HDHP

o Not claimed as a dependent on another person’s tax return.

o Not enrolled in Medicare

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What other kinds of benefits may an individual have with an HSA?

Insurance Coverageo Accidentso Disabilityo Dental careo Vision careo Long-term careo Specified disease or

illnesso Insurance that pays a

fixed amount/day of hospitalization

Other Coverage (Non-Insurance)

o Employee Assistance Plan• If they do not provide

significant benefitso Self-funded worker’s

compensationo Discount or pre-negotiated

pricing cardso Cafeteria Plan

• Health FSAs must be designed for only specified coverage such as dental + vision

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* 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 2006 Single Family

Minimum Deductible*

$1,050 $2,100

Max. Out of Pocket**

$5,250 $10,500

What is a qualified high-deductible

health plan (HDHP)?

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What is included in Out-of-Pocket Maximum?

Includedo Deductibleo Co-insuranceo Co-pays

Not Includedo Money or penalties for

a service not pre-certified

o Money or penalties for non-network providers

o Amounts over the usual, customary, & reasonable amounts

o Amounts for ineligible expenses

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Additional Health Plan Guidelines

o Plans cannot provide benefits before the deductible is met, except for preventive care, permitted insurance, or permitted coverage

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What preventive care benefits can a plan offer?

o Periodic health evaluationso Routine prenatal and well-child careo Immunizationso Tobacco cessation programso Obesity weight-loss programso Screening services

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What benefits are not considered Preventive Care?

o Generally, 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.

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Health Plans

NOTE: HSA Bank™ is not in the insurance business. To determine if a specific plan qualifies, contact your health plan representative.

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Single Family

$2,700 $5,450Contribution Cap for 2006

100%

100%$2,700

$5,450

Contribution Guidelines for 2006

Up to 100% of deductible*

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?

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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.

Year Catch-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.

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Who contributes to my HSA?

o Accountholder (Individual, Self-Employed, Employee)

o Employer o Third-party (on behalf of

accountholder)• Family Member, Beneficiary, Friend • State Government

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How contributions can be made

o Contributions to an HSA must be made in “cash”. For example, contributions may not be made in the form of stock or other property.

o Contributions to the HSA can be made through a cafeteria plan.

o Rollovers are permitted once per year• MSA to HSA• HSA to HSA

o Transfers are not limited

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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 $100 $50 $50

% of Deductible

50% or $500

50% or $1,000

25% or $250

25% or $500

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Employers Comparable Contributions Exceptions

o Comparability rules do not apply to employer contributions made through a Section 125 cafeteria Plan.

o Employers may make matching contributions through a Section 125Cafeteria Plan (Non-discrimination rules apply)

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Coordinating HSA Contributions

EMPLOYERCONTRIBUTIONS

HSA Contribution

LimitsUp 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.

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Tax treatment of HSAs for employees/accountholders

o Pre-tax• Contributions are deducted from accountholder’s

federal taxable income

o Earnings• HSAs grow in the same tax-deferred manner as

IRAs

o Distributions• 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

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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 3%

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

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What is the tax treatment of employer contributions to an individual’s HSA?

o Treated as employer-provided coverage for medical expenses under an accident or health plan

o Excludable from gross incomeo Not subject to withholding for income taxo Not 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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HSAs, HRAs, FSAs

HSA HRA FSAAccount owner

Employee Employer Employee

FundingEmployee, Employer,

OtherEmployer

Employee,Possible

Employer

Rollover year-to-year

YesGenerally

NoNo

Portable YesGenerally

NoNo

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Advantages of an HSA

To an Employer o Employee 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

o Provides employers and employees with tax benefits

o HSAs allow “matching” contribution options by employers and employees

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Advantages of an HSA

To an Employee o Increased consumer choiceo Funds rollover year to year, eliminating the

“use it” or “lose it” philosophyo Tax benefits on the contributions, earnings,

and distributions• Increases take home pay

o Long-term investment opportunityo Portability

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How HSAs/HRAs/FSAs can work together

o HSA• Limited Purpose FSA

o Pay for dental and vision expenses without having to use HSA funds

o FSA Extension• Provides 2.5 months beyond the end of the plan year to

use FSA funds

• Post Deductible HRA

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When may I take distributions from my HSA?

o Your 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.

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What are Qualified Expenses?

o A Qualified Expense is generally any expense incurred to maintain your health or your family’s health

o A complete listing provided in Section 213d of IRS Ruling

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Other eligible medical expenses

o Premiums for long-term care insurance• Limited to amount listed in 213(d)(10)

o Premiums for "COBRA”

o Premiums for coverage while receiving unemployment compensation

o Premiums for individuals over age 65 • Retirement Health Benefits• Medicare Premiums

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Thank you for considering…