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Considering a Health Savings Account?. Basic HSA Plan Concept. Part 1: High Deductible Health Plan. Intended to cover serious illness or injury. HSA Concept. Part 2: Health Savings Account Made by: Employer, Employee, and/or other party. - PowerPoint PPT Presentation
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Considering a Considering a Health Savings Health Savings Account?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 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
3
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?
6
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
10
Additional Health Plan Guidelines
o Plans 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?
o Periodic health evaluationso Routine prenatal and well-child careo Immunizationso Tobacco cessation programso Obesity weight-loss programso Screening services
12
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
22
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
23
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)
24
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
25
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
28
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
30
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…