Considering a Health Savings Account? Health Savings Account?
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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…