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Health Savings Accounts a legislative Update.ppt

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Health Savings Accounts a legislative Update.ppt Powered By Docstoc
					Health Care Savings Accounts


                  Presented by
                  Linda A. Meyerhoffer, CPA
                  June 6, 2006
                  www.yourflex.com
          Benefit Solutions, Inc.
    Consumer Driven Health Care Vehicles

       High-Deductible Health Insurance
       MERP’s – employer & employee funded
       HRA’s – ER funded, carry over & spend
        down features
       Health FSA’s
       MSA’s
       HSA’s

2
    Medicare Reform Legislation
    Benefit Solutions, Inc.

       Most significant change to Medicare since it’s
        inception
       Also helps those not eligible for Medicare by adding
        HSA’s, effective January 1, 2004
       Legislation is hailed as “historic breakthrough” by
        some, criticized as flawed and limited by others
       While new law provides framework for change,
        details will emerge over time.
       Implementation of programs scheduled from 2004 to
        2010+

3
    HSA Eligibility Requirements

       An individual is eligible only if
           Covered by a qualifying HDHP
           Not covered by another disqualifying coverage
             •   General purpose health FSA or HRA
             •   Impact of new FSA 2 ½ month rule
           Pharmacy benefits must be under the HDHP – no card
            program below the deductible unless 100% paid for by
            employee
           Not eligible to be claimed as a dependent (Code Sec 152)



4
    HSA Eligibility Requirements

       An individual is eligible only if
           Not ENTITLED TO Medicare
            Have attained age 65 and -
                have applied for and are receiving retirement benefits
                 from Social Security or the Railroad Retirement Board;
                 or
                is eligible for monthly retirement benefits from Social
                 Security or the Railroad Retirement Board (but is not
                 receiving such benefits because he or she has not
                 applied for them) and has filed an application for
                 Medicare Part A.9

5
    HSA Eligibility Requirements

    Other Types of Insurance Permitted
     Insurance associated with a specific disease
     Hospitalization that pays a fixed amt/day
     Vision
     Dental
     Limited FSA - covering vision, dental and preventive
      care (Not OTC meds)
     Suspended HRA – elect forgoing coverage before
      coverage period begins
     Many EAP’s and Wellness Mgmt Programs


6
    HSA Eligibility Requirements

    Other Types of Insurance Not Permitted
     Va Benefits within 3 months before month of
      eligibility (preventive excluded)
     TRICARE – Health care for active-duty &
      retired members of uniformed service/family
     On-site clinic – if it provides more than
      nominal medical services and
      preventive/permissible care.

7
    HSA Eligibility Requirements

    The following can also establish an HSA and contribute
      but not under a 125 plan. Therefore any
      contributions by the employee can not be pre-taxed.
      Since they are not employees, any ER contribution is
      not tax deductible either.
     More than 2% shareholder of an S Corp
     Partners in a Partnership
     Self-employed individuals



8
    HSA Eligibility Requirements



      Eligibility is determined on the 1st of each
                           month




9
     HSA Eligibility Requirements



     Once a participant becomes ineligible, they can
       not contribute but they can take distributions




10
     HSA Coverage Requirements

        Employee must have plan with deductible of
         $1,050 or more in 2006 ($2,100 for family)
            Plan out-of-pocket maximum cannot be greater
             than $5,250 ($10,500 family)
            OK if plan imposes no deductible for preventive
             care or has higher OOP limit for out-of-network
             benefits
            Deductible and OOP maximums are indexed
             annually

11
     HSA Contribution Requirements

     •   Maximum annual contribution is lesser of deductible
         or $2,700 ($5,450 family) for 2006 – $225/month
           Additional contributions allowed for 55+ : $700
            ($1,400 family) increasing to $1,000 ($2,000
            family) in 2009+
           Roll over contributions not subject to limits (HSA
            to HSA)
           Maximum annual contributions are indexed
           Cannot rollover HRA or FSA funds in to HSA


12
     ER Contributes to HSA

      Outside of a 125 plan –
        then comparable contributions must be made for
        all employees with comparable coverage – same
        $ or % of deductible. Employees don’t have a
        choice of what to do with the money.
      Inside of a 125 plan –
        comparability does not apply, only discrimination
        testing regs. More flexibility on allocating funds,
        matching, etc.

13
     Special Rule for Married Couples

        If either spouse has family coverage, then
         both spouses are treated as having only that
         family coverage.
        If both spouses have family coverage, then
         the lower annual deductible is used for
         purposes of determining both eligibility and
         the combined monthly contribution limit.
        Separate Trusts – no joint HSA
14
     Tax Treatment

      Contributions (subject to limits)
            Employer contributions excluded from income and
             wages
            Individual after-tax contributions deductible “above the
             line”
            Contributions can be made until April 15 of the following
             year
            Pre-tax contributions allowed through Section 125
             “cafeteria plan” if limited to permitted coverage
      Earnings
            Trust earnings grow tax-free

15
     Tax Treatment

      Distributions
            Distributions for qualified medical expenses are tax-free
            Other distributions are permitted but are included in
             income and subject to 10% penalty tax (no penalty if
             eligible for Medicare)
            Special rules for distributions upon death and divorce
            Can be used for self, spouse and dependents even
             though they may not be eligible for HSA
            Self-adjudicating – keep those receipts



16
     What Happens at Death

        If beneficiary is spouse, transfer to spouse is
         non-taxable
        If non-spouse, the account ceases to be an
         HSA and the fair market value of the account
         is given and taxed then
        Claims for qualified medical expenses of the
         decedent can be deducted first if done within
         a year
17
     Tax Treatment


        Only approach where contribution,
         investment earnings and withdrawals for
         health-related expenses are all free from
         taxation
        Expenses must be incurred after an HSA is
         established


18
     What Expenses Will HSA’s Cover

        Most insurance not covered except:
         –   COBRA,
         –   LTC within Code § 213(d)(10) limit
         –   any received while unemployed,
         –   any health insurance when 65 or over except for
             Medicare Supplement




19
     Investing Options

        No life insurance
        No co-mingling with other property
        No collectibles
        Yes - Same investment options of an IRA
        Yes Bullion or coins
        No borrowing against it


20
     Special Considerations

        HSA’s offered through 125 plans
         –   Irrevocable election rules do not apply
         –   Changes are prospective
         –   Uniform coverage rule does not apply
         –   No required 12 month coverage
         –   No comparability rules
         –   Include when running Key Man Test (25% rule)
         –   Can still fund LTC through HSA

21
     Special Considerations

        COBRA does not apply
        ERISA does not apply as long as
         –   Establishment of the account is voluntary
         –   Limit the ability for the employee to move the $
         –   Must not impose conditions on utilization
         –   Must not make or influence investment decision
         –   Must not represent that the HSA is established or
             maintained by the employer
         –   must not receive any payment or compensation in
             connection with the HSA.
        HIPAA not sure if “health plan” yet


22
     Employer Options

      Do nothing
      Adopt a HDHP (HSA compliant)
            With or without employer-sponsored HSA
            With or without employer contribution to HSA Convert
             existing CDHC from HRA to HSA
      Adopt an HSA
      Convert existing Archer MSA to HSA
      Communicate changes in conjunction with
      future reductions in retiree subsidies
23
     Employer Options - HDHP
      Offer an HSA-compliant HDHP
         Employees have option of setting up HSA of their own
         No cost to employer for HSA
      Offer HDHP and sponsor an HSA for eligible employees
         Employees can contribute through employer or set up HSA on
          their own
         Administrative cost for employer unless employees pay cost
      Offer HDHP, sponsor HSA and make contributions to the HSA
         Employer plus employee contribs cannot exceed limits
         Employer pays HSA cost plus administrative cost (unless paid by
          employees)
         Funding HSA’s by employer is not a long-term liability but has a
          cash cost


24
     Employer Options - CDHC

     Consumer Driven Health Care – Implement HSA compliant plan,
       or convert current HRA based plan to an HSA

     Disadvantages:
           Contraints on insurance protection provided
           No employer control over savings account qualified expenses and
            carryover provisions
           Greater risk that employees will not use savings account wisely
           Employees less bound to employer
           Cash funding required
           Cannot roll “unused” HRA funds into HSA



25
     Vendor Overview


        Vendor landscape is morphing
        Stay alert
        Many not certain what final shape will be




26
     Questions & Answers




27

				
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