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Understanding High Deductible
Health Plans and the Role of:
Health Savings Accounts
Health Reimbursement
Arrangements
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
High Deductible Health Plans (HDHP)
and Open Season
• OPM is pleased to offer a new health care option.
• HDHPs will give the Federal Team additional
opportunities to save and better manage their hard-
earned dollars.
• The Federal Team will be able to enroll in HDHPs this
Open Season.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
High Deductible Health Plans – Part 1
Part 1:
High Deductible Health Plan
Intended to cover serious illness or injury
Preventive Care
First dollar coverage, or co-payment
or a limited benefit amount
Or
Part 2B:
Part 2A:
Health Reimbursement
Health Savings Account
Arrangement
Dollars for healthcare expenses
Credits for healthcare expenses
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Basics of
High Deductible Health Plans
• High Deductible Health Plans (HDHP) provide
insurance coverage.
• Service delivery in HDHP programs may be offered
with a:
– Preferred Provider Organization (PPO)
– Health Maintenance Organization (HMO)
– Point of Service (POS)
• Depending on the HDHP, you may have the choice
of using in-network or out-of-network providers.
Using in-network providers will save you money.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Basics of
High Deductible Health Plans Cont.
• With the exception of preventive care, the annual
deductible must be met before plan benefits are
paid.
• An exception is made for preventive care services
which are paid after a small deductible or co-payment.
A maximum dollar amount (up to $300, for instance)
may apply.
• An HDHP with a Health Savings Account (HSA) or a
Health Reimbursement Arrangement (HRA):
– Helps to build savings for future medical expenses
– Allows greater flexibility over how you use your
health care dollars
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Basics of
High Deductible Health Plans Cont.
• HDHPs must have minimum deductibles of:
– $1,050 for Self-Only coverage
– $2,100 for Self and Family coverage
• HDHPs have higher annual out-of-pocket limits than
many plans. The maximum in-network, out-of-pocket
limits for HDHPs in the FEHB Program are:
– $5,000 for Self coverage
– $10,000 for Self and Family coverage
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
How Out-of-Pocket Costs Are Counted
Towards the Catastrophic Limits
Which expenses count towards the catastrophic limit?
Standard High Deductible
Plan Health Plan
Deductible? No Yes
Copayments for doctor visits? No Yes
Drug costs above plan payment? No Yes
Other out-of-pocket expenses for Yes Yes
covered benefits?
Charges above plan allowance? No No
Medical expenses not covered No No
by the plan?
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Health Savings Account – Part 2A
Part 1:
High Deductible Health Plan
Intended to cover serious illness or injury
Preventive Care
First dollar coverage, or co-payment
or a limited benefit amount
Or
Part 2B:
Part 2A:
Health Reimbursement
Health Savings Account Arrangement
Dollars for healthcare expenses Credits for healthcare expenses
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Basics of a
Health Savings Account
• A Health Savings Account (HSA) and a Health
Reimbursement Arrangement (HRA) provide a tax-
advantaged way to save for future medical expenses.
• An HSA is a component of a High Deductible Health
Plan (HDHP). You must be enrolled in an HDHP to
have an HSA.
Insurance + Tax-Advantaged Savings Vehicle = HDHP/HSA
• An HSA is an account that you own for the purpose of
paying qualified medical expenses for yourself, your
spouse, and your dependents.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Funding Your HSA
• Your HSA may be funded up to your HDHP’s
deductible through the ―premium pass through‖
and your voluntary contributions.
• Your voluntary contribution is made directly to an
IRS approved trustee administering the HSA.
Plan $$ + member’s own contribution $$ + earned interest = HSA
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Eligibility for a
Health Savings Account
• By law, you must enroll in an HDHP to be eligible for an HSA.
• By law, you are not eligible for an HSA if you:
– are enrolled in Medicare,
– are covered by another health care plan that is not an HDHP,
– can be claimed as a dependent on someone else’s tax return,
– are enrolled in a general Health Care Flexible Spending Account
(or covered by a spouse’s FSA),
– are covered by a non-HDHP such as TRICARE and TRICARE
For Life, or
– are covered by VA benefits and have used VA medical services
within the previous 3 months.
• The HDHP helps you determine your eligibility for an HSA.
• If you do not qualify for an HSA, your HDHP will establish a Health
Reimbursement Arrangement (HRA) for you.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Features of a
Health Savings Account
• Tax-deductible contributions
– Your own HSA contribution – deductible on
your income tax return (applies with either
itemized or standard deduction).
– Annual contributions may be made any time
during the calendar year up to April 15 of the
following year (tax return due date).
– The health plan’s ―premium pass through‖ is
not taxable.
– The annual maximum contribution is
established by law and generally cannot be
greater than the HDHP deductible.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Catch-Up Contribution to HSA
Year Amount
In addition to the
maximum contribution, 2005 $600
(the plan’s annual 2006 $700
deductible) individuals 2007 $800
between the ages of 55 2008 $900
and 65, can make “catch- 2009+ $1,000
up” contributions to the
HSA each year.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Features of a Health Savings Account
HSA
Earnings Tax-free growth
Health plan No tax on the
“premium pass Contributions “premium pass
through” through.” Voluntary
contributions are
Voluntary
Contributions not taxed.
Tax-Free Distributions
(For Qualified Medical Expenses)
* Plus a 10% Tax Penalty for Regular Tax*
Non-Qualified medical (Non-Medical expenses over age 65)
expenses before age 65
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Features of a
Health Savings Account
• Tax-free withdrawals for ―qualified medical
expenses.‖
• Qualified medical expenses include:
– Dental treatment such as fillings, braces, extractions
– Hearing aids including batteries
– Prescription drugs and over-the-counter drugs
– Eye exams, eyeglasses and contact lens
– Premiums for qualified long term care insurance
(dollar limits may apply)
– Out-of-pocket expenses including deductibles,
coinsurance and co-payments
– Acupuncture
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Features of a
Health Savings Account
• Tax-free interest
– Interest accrues on the HSA balance.
• Rollover of funds
– Unused funds and interest carry over, without limit, from year
to year.
• Portability
– The HSA is yours to keep—even when you retire, leave the
Federal government, or change health plans.
• Funds held with a qualified trustee or custodian
– Example: Bank, insurance company, Federal credit union.
The FEHB member may select a different trustee or
custodian for voluntary contributions.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Other Types of Insurance Coverage
Insurance Allowed with an HSA:
• Accident •Long-term care
• Disability •Specified disease or illness
• Dental care •Insurance that pays a fixed amount per
day of hospitalization
• Vision care
•Limited HCFSA (not currently offered
under FSAFEDS)
Insurance or Accounts Not Allowed with an HSA:
•Health Care Flexible Spending Account (HCFSA) or a Spouse’s FSA
•Medical coverage by a non-HDHP
•TRICARE or TRICARE For Life
•Any VA benefits used within previous 3 months
•Part A and/or Part B Medicare
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Determining the Maximum Allowable
Contribution to an HSA Account
• The maximum allowable contribution is
determined by the HDHP’s effective date.
If the HDHP is effective… then the maximum
allowable contribution
on the first day of the month, will include that month plus the
number of months remaining in the
year.
after the first day of the month, will be determined by the number
of full months remaining in the
year (not including that month).
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Determining the Maximum Allowable
Contribution to an HSA Account
• To calculate the maximum allowable
contribution:
– Divide the annual deductible by 12
– Multiply the result by the number of full
months remaining in the year, after the
effective date of the HDHP.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Example 1: Determining the Maximum
Allowable Contribution to an HSA Account
• An FEHB member enrolls in an HDHP with an HSA. The
annual deductible for Self and Family coverage is $2400.
HDHP Effective Maximum Allowable
Date Contribution
January 9, 2005 1. Divide the deductible ($2400) by 12
= $2400/12
= $200
2. Multiply the result ($200) by the
number of remaining months in the
year (11) = $200 X 11
= $2200
The maximum allowable contribution is $2200
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Example 1: Calculating the Annual Maximum HSA
Contribution for FEHB Members Paid Biweekly
An FEHB member enrolls in an HDHP with an HSA. The annual
deductible for Self and Family coverage is $2400. The ―premium
pass through‖ is $1200 per year. The member’s HDHP enrollment
effective date is 1/9/05.
Calculations
Maximum Annual HSA
Contribution = $2200 (for 11 full months)
Amount of Health Plans $ 100 per month for 12 months
“Premium Pass Through” = $1200
Maximum Allowable $ 2200 (maximum HSA contribution)
Voluntary Contribution $ -1200 (premium pass through)
= $1000
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Example 2: Determining the Maximum
Allowable Contribution to an HSA Account
• An FEHB member enrolls in an HDHP with an HSA. The
annual deductible for Self and Family coverage is $2400.
HDHP Effective Maximum Allowable
Date Contribution
June 10, 2005 1. Divide the deductible ($2400) by 12
= $2400/12
= $200
2. Multiply the result ($200) by the
number of remaining months in the
year (6) = $200 X 6
= $1200
The maximum allowable contribution is $1200
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Example 2: Calculating the Annual Maximum HSA
Contribution Mid-Year Enrollment
An FEHB member enrolls in an HDHP with an HSA. The annual
deductible for Self and Family coverage is $2400*. The ―premium
pass through‖ is $700 per year. The member’s HDHP enrollment
effective date is 6/10/05.
Calculations
Maximum Annual HSA
Contribution = $1200 (for 6 full months)
Amount of Health Plans $100 per month for 7 months
“Premium Pass Through” = $700
Maximum Allowable $ 1200 (maximum HSA contribution)
Voluntary Contribution $ - 700 (premium pass through)
= $ 500
*The member will have to meet the entire deductible.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Example 3: Determining the Maximum
Allowable Contribution to an HSA Account
• An FEHB member enrolls in an HDHP with an HSA. The
annual deductible for Self and Family coverage is $2400.
HDHP Effective Maximum Allowable
Date Contribution
January 1, 2005 1. Divide the deductible ($2400) by 12
(for FEHB members = $2400/12
who are paid = $200
monthly) 2. Multiply the result ($200) by the
number of remaining months in the
year (12) = $200 X 12
= $2400
The maximum allowable contribution is $2400
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Example 3: Calculating the Annual Maximum HSA
Contribution for FEHB Members Paid Monthly
An FEHB member enrolls in an HDHP with an HSA. The annual
deductible for Self and Family coverage is $2400. The ―premium
pass through‖ is $1200 per year. The member’s HDHP enrollment
effective date is 1/1/05.
Calculations
Maximum Annual HSA
Contribution = $2400 (for 12 full months)
Amount of Health Plans $100 per month for 12 months
“Premium Pass Through” = $1200
Maximum Allowable $ 2400 (maximum HSA contribution)
Voluntary Contribution $ -1200 (the premium pass through)
= $1200
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
HSA Distribution Process
• HSA trustees or custodians are not required to
determine whether HSA distributions are used for
qualified medical expenses.
• Individuals who establish HSAs should maintain
records of medical expenses to show distributions
have been made exclusively for qualified medical
expenses should the IRS request them.
• Each HSA trustee will have specific instructions on
the qualified distribution of qualified or non-medical
expenses.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Health Reimbursement Arrangement – Part 2B
Part 1:
High Deductible Health Plan
Intended to cover serious illness or injury
Preventive Care
First dollar coverage, or co-payment
or a limited benefit amount
Or
Part 2B:
Part 2A:
Health Savings Account
Health Reimbursement
Dollars for healthcare expenses Arrangement
Credits for healthcare expenses
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Basics of a
Health Reimbursement Arrangement
• An HRA is a savings credit that works hand-in-
hand with an HDHP.
• The HDHP credits a portion of the health plan
premium to the HRA (some plans will credit the
annual amount at the beginning of the plan year).
• The HDHP helps determine eligibility. If you are
not eligible for an HSA, your health plan will
enroll you in an HRA.
• A limited HRA (called a Personal Care Account) is
also available with Consumer Driven health plan.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Features of a
Health Reimbursement Arrangement
• Tax-free withdrawals for qualified medical expenses
only. Must provide documents of medical expense to
health plan.
• Carryover of unused credits from year to year.
• Credits in an HRA do not earn interest.
• Credits in an HRA are forfeited if you switch health plans
or leave Federal employment, except for retirement.
• Voluntary contributions to an HRA are not allowed.
• HRAs are more limited on tax advantages, forfeitures,
expense distribution, and voluntary contributions
than HSAs.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
The Differences Between an HSA and HRA
Benefits HSA HRA
Earns Interest? Yes. No.
Allows tax-deductible Yes. No.
contributions to your
account?
Allows you to withdraw Yes, subject to tax; No.
fund for non-medical and penalties prior to
purposes? age 65
Portable? Yes. You own your No. Your account is
account. forfeited if you leave the
sponsoring health plan
or leave the government
(except for retirement).
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Health Care Flexible Spending Account (HCFSA)
Dependent Care Flexible Spending Account (DCFSA)
Will an HCFSA and/or an DCFSA affect the
member’s eligibility to an HSA or HRA?
•A DCFSA is permitted with an HCFSA, HSA or
HRA.
•An FSAFEDS HCFSA is not allowed with an HSA.
•An FSAFEDS HCFSA is permitted with an HRA.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Features of a Health Reimbursement
Arrangement
HRA
Credits
Credits to the
Credits are not
HRA
taxable
Tax-Free Distributions
(For Qualified Medical
Expenses)
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Example of an Enrollment, Set-Up,
Contribution, and Distribution Process
1 Open Season election form completed by FEHB member.
2 HDHP/HSA or HRA set-up begins with receipt of enrollment form.
3 Trustee/custodian/or health plan paperwork sent to FEHB member.
4 The first ―Premium Pass Through‖ deposited to the HSA, or credits to
HRA by the health plan.
5 Trustee/custodian paperwork completed by the FEHB member &
returned to health plan.
6 Only medical expenses incurred on or after the HSA or HRA is set-up
are reimbursable through distributions.
7 Enrollee may begin voluntary contributions after the HSA is set-up.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
List of High Deductible Health Plans
GEHA and Mail Handlers are available nationwide.
Plan Parts of:
Advantage Health Solutions Indiana
Aetna HealthFund Alaska, Alabama, Arkansas, Arizona,
California, Colorado, Connecticut,
Delaware, District of Columbia, Florida,
Georgia, Illinois, Indiana, Kansas,
Kentucky, Maryland, Massachusetts,
Michigan, Mississippi, Missouri, North
Carolina, Nevada, New Hampshire, New
Jersey, New York, Ohio, Oklahoma,
Pennsylvania, South Carolina,
Tennessee, Texas, Virginia, Washington
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
List of High Deductible Health Plans
Plan Parts of:
AultCare Ohio
Coventry Health Care Delaware, Georgia, Iowa, Kansas,
Louisiana, Maryland, New Jersey,
Pennsylvania
Group Health Plan Illinois and Missouri
HealthAmerica Pennsylvania
OSF Health Plans Illinois
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Resources: Search the Web, Refer to the
2005 Plan Brochures and 2005 Guides
• FSAFEDS
– www.fsafeds.com; 1-877-FSAFEDS(372-3337) or TTY 1-800-952-0450
• OPM Web address for HSAs
– www.opm.gov/hsa
• U.S Treasury Department for HSAs
– www.ustreas.gov/offices/public-affairs/hsa
• 2005 Guide to Federal Employees Health Benefits Plans and 2005 individual
health plan brochures
– http://www.opm.gov/insure/health/index.asp
• For a list of qualified medical expenses that can be reimbursed through an HSA
or HRA:
– www.irs.gov/pub/irs-pdf/p502.pdf
– Note: Over-the-counter drugs and insurance premiums are qualified medical
expenses.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
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