Choosing the Right HSA

Employer’s Guide to

Choosing the Right HSA


© 2010 Alliant Credit Union. All rights reserved. 2

Overview

How HSAs work

Benefits of HSAs for your company and your employees

How to evaluate HSA providers

How to implement your program



The emergence of HSAs

Healthcare Savings Accounts (HSAs) were introduced in 2003 as a way to control rising health care costs

Way to save premium costs and maintain a competitive health care benefit package

Companies can save 20% to 40% in their premiums. The average savings is around 30%1

Attract and retain valued employees

Today 45% of U.S. companies offer an HSA-eligible High Deductible Health Plan (HDHP)2

Sources: 1. Joe Williams, business development manager for Bay Benefits Insurance Services, 2009. 2. C. William Sharon, AON Consulting/ISCEBS survey, October 2008.



Four HSA statistics of interest

Over 8 million Americans have an HSA3

8% of all U.S. employees in an employee-sponsored health insurance plan are in an HDHP/HSA-eligible plan4

In companies that offer HDHP/HSA as an option, about 15% of employees participate5

By 2012, between 11 and 13 million Americans are expected to have an HSA6

GROWTH OF HSA HDHP ENROLLMENT7

(from March 2005 to January 2009)

Sources: 3.2009 annual census by America’s Health Insurance Plans, published May 13, 2009. 4. Kaiser Family Foundation and Health Research Education Trust, “Employer Health Benefits 2008 Summary of Findings”. 5. Pediatrics, the official journal of the American Academy of Pediatrics, March 1, 2007. 6. Diamond, “Diamond Management & Technology Consultants Issues Updated HSA Estimates,” January 7, 2009. 7. 2009 AHIP HSA/HDHP Census.



The fundamentals of an HSA

Health Savings Accounts: tax-deferred, interest-accumulating accounts that can only be offered in conjunction with an HDHP

Employees must be covered by a qualified HDHP before enrolling in an HSA

Contributions may be made to employees’ accounts by company & employee

2010 contribution limit for individual plans is $3,050; $6,150 for family plans

Employees age 55 or older can also make a $1,000 “catch-up” contribution



How an HSA Works

Help employees save money to use for their qualified medical expenses

Paid for with pretax or tax-deductible dollars and is fully owned by the employee

Employees and employers can contribute to an HSA

HSA accountholders can withdraw funds at any time, without penalty, if used for qualified medical expenses

Access to funds typically by debit card, check or online banking system

HSA funds earn interest provided by the HSA custodian

The account is portable and unused funds accumulate and rollover year to year



HSA (Health Saving Account) HRA (Health Reimbursement Account) FSA (Flexible Spending Account)

Eligibility Employees must be covered by an HDHP. (Employees no longer covered by an HDHP keep the HSA, but can no longer make contributions)

Employees in companies that offer this benefit. (Former employees can be included)

Employees in companies that offer this benefit. (Former employees cannot be included)

Qualifying health insurance needed

Employee must be covered by an HDHP Although usually offered in conjunction with an HDHP, there are no health insurance requirements for an employee to participate in an HRA

No health insurance requirements

Contributions Funding can be made by the employer, the employee or any person on behalf of an eligible employee

Funding can be made only by the employer Funding is usually made by employees through a reduction in their salary. Contributions can be made by employer, employee or both

Annual contribution limits

In 2011, the contribution limit to individual plans is $3,050. Limit for family plans is $6,150. Employees aged 55 or older can also make a “catch-up” contribution of $1,000

No contribution limits, although employers typically contribute less than the annual deductible of their health plan offering

No required contribution limit, although employers usually impose one

Qualifying expenses Most unreimbursed medical expenses Note: an employee may qualify for both an HSA and an FSA. However, they cannot “double-dip” – be reimbursed by both accounts for the same expense

Most unreimbursed medical expenses, although employers may impose limitations, such as no payments for long-term care or health insurance premiums

Most unreimbursed medical expenses, although employers may impose limitations. Cannot be used for long-term care or health insurance premiums

Allowable non-medical withdrawals

Permitted, but subject to income tax and 20% penalty. After accountholder reaches age 65, or upon death or disability, funds used for non-medical expenses are subject only to income tax

Not permitted Not permitted

Carryover of unused funds and rollovers

Full amount of funds can be carried over indefinitely

Permitted, although some employers limit the amount that can be carried over. Employees are allowed a limited, one-time rollover to an HSA

Balances left at year’s end (or up to 2 ½ months after year’s end, if employer permits) are forfeited to employer. Employees are allowed a limited, one-time rollover to an HSA

Portability Portable Funds may be portable – it’s at the discretion of the employer. Also, subject to COBRA provisions

No, funds usually forfeited at termination, although COBRA extensions sometimes apply

The Advantages of an HSA vs. an HRA or FSA



HDHPs and HSAs provide key benefits for employers

Reduced premiums

Tax savings

An enhanced benefit package

An incentive for your employees to make responsible health care spending decisions

An incentive for your employees to focus on maintaining their health

Less administrative hassles

HOW HSAs BENEFIT EMPLOYERS



HSAs provide your employees tax advantages:

Pre-tax contributions made via payroll deductions will reduce federal tax liability

Contributions and dividends are not taxable if used for qualified medical expenses

Contributions made with after-tax dollars are deductible

Unused funds remain in the HSA year after year, earning tax-deferred interest



Can move the HSA from one

financial institution to another

There are many reasons for your employees to open an HSA

Control the way funds are spent

and investedSave for future

medical expensesAccount

is portable



HDHPs/HSAs can be a great investment for your employees

Your company can make contributions to

employees’ HSAsHSAs are a great

retirement savings toolFunds left in HSA will earn interest tax-free

Once deductible is met, many HDHP plans pay 100% of qualified medical expenses

The HDHP deductible is typically less than the HSA

contribution limits



Employees can use HSA funds for qualified medical expenses including

Dental treatment, such as fillings, braces and extractions

Eye exams, eyeglasses and contact lenses

Out-of-pocket expenses, such as deductibles, coinsurance and co-payments

Prescriptions

Qualified long-term care services and insurance

COBRA insurance

Medicare premiums (if no longer covered by an HDHP) but not Medigap

Retiree health expenses

Hearing Aids

Acupuncture

Qualified medical expenses are subject to change by the IRS. Please visit www.irs.gov for a current list of qualified medical expenses.



Your employees can withdraw HSA funds without penalty

At any time to cover qualified medical expenses

Funds used for non-medical expenses when accountholders reach age 65, or upon death or disability, are subject only to income taxes and will not be assessed a penalty



How to increase HDHP enrollment by offering the right HSA

EducateEmployees

OfferWellness Programs

FundEmployees’ Accounts



Fund your employees HSAs

How much should your company contribute to your employees’ HSAs?50% to 70% of the deductible, benefit experts recommend12

72% of the firms that offer an HDHP/HSA fund the account8

72% 61% of consumers are more likely to

participate in an HDHP if their employer contributes to their HSA9

61%

71% 71% of employees who received employer contributions opened an HSA versus 48%

of those who received no contribution11

$898 $1,522 single coverage family coverage/

The average employer contribution is $898 for single coverage; $1,522 for family coverage10

Sources: 8. Kaiser Family Foundation and Health Research Education Trust, “Employer Health Benefits 2008 Summary of Findings”. 9. Guardian Life Insurance, “Benefits & Behavior: Spotlight on Consumer-Driven Health Care,” 2008.10. U.S. Bureau of Labor Statistics, 2008, cited in “Benefits Marketplace 2009,” on Benefitnews.com. 11. Blue Cross & Blue Shield Association study, cited in “Members of CDHPs more engaged,” Business Insurance, October 27, 2008 12. Joe Williams, business development manager for Bay Benefits Insurance Services, 2009.



Be prepared Be prepared to address a learning curve when introducing an HSA

Have materials Have materials to explain how the plan works and the benefits

Communicate Communicate via intranet, newsletters, payroll stuffers, staff meetings, etc.

Communicate early and often



Choosing the Right HSA Custodian

Although some HDHP insurance companies have a “preferred relationship” with an HSA custodian,

there’s no requirement to choose that custodian

Wider range of investment options and higher interest

rates offered through independent HSA providers

If you change insurance providers, its affiliate HSA

provider will often raise your fees or lower

your interest13

Although large banks are winning HSA market share due to deals with large plan consultants and employers, smaller providers and third-

party administrators may provide the best products and

services for the end user

Source: 13. ehow.com, tips on choosing an HSA provider by Diane Monde Dill, cited in HR Management, July 28, 2009.



In choosing an HSA custodian

Look at the relationship from your employees’ point-of-view

Choose an HSA custodian with a high interest rate

Choose an HSA custodian with a low-fee or no-fee structure

Choose a custodian that provides your employees with easy access to their HSA funds

Choose a custodian with good investment options

Choose a custodian that provides excellent customer service for its HSA

Choose a custodian that works well with its clients



Employer’s roles and responsibilities

Include your accounting and programming departments for tax purposes and record keeping

Plan to offer HSA contributions? Involve your payroll department or vendor

Make sure the HSA custodian is compatible with your processes and operations

Define which activities are the responsibility of the HSA custodian

You will not be involved with any claim reviews, adjudications or reimbursement checks



Ensure a Healthy Future with an Alliant HSA

EARN MOREwith one of the industry’s highest dividend rates

24/7Personal and automated member service twenty four hours a day, seven days a week

SAVE MOREwith no fees for account opening, maintenance or transactions

GET MOREwith a Free VISA® HSA Debit Card, Free HSA Checks, and Free online banking

Alliant membership is an exclusive benefit available to employees, retirees and members of qualifying Select Employee Groups, organizations/associations and their family members; and individuals who live or work in qualifying communities and their family members. Applicants must also meet other eligibility requirements for Alliant membership. Please visit www.alliantcreditunion.org for details regarding Alliant membership eligibility.



HSA Investment Option

Experienced advisors with a credit union service

philosophy

Retirement Income Planning, 401k and

Pension Plan Rollovers, IRA Services, College Saving Plans & Wealth

Management

Get the assistance you need, consistent with your risk tolerance,

investment timelines & goals

trustworthy full-service no cost, no obligation

consultations

*Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/ SIPC, a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free (866) 512-6109. Deposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members. CUNA Brokerage Services, Inc. is a registered broker/dealer in all fifty states of the United States of America. FR121002-4F80



For more information or to download our white paper, Is an HDHP/HSA the right prescription for your company?, visit http://

www.alliantatwork.com/.



This material is prepared for educational purposes only and was developed by Alliant Credit Union. All reasonable efforts were taken to ensure the accuracy of the information provided and to properly attribute sources.

However, consult your plan administrator, tax and legal advisors for advice. Alliant disclaims any liability for your reliance on the information presented.

SEG333-r11/10

Economy & Finance

Choosing the Right HSA