Considering an HDHP With an HSA? Basic HSA Plan Concept Part 1: High Deductible Health Plan For 2008 Single Family Intended to Min. Deductible $1,100 $2,200 cover serious Max. Out of Pocket $5,600 $11,200 illness or injury For 2009 Single Family Min. Deductible $1,150 $2,300 HSA $5,800 $11,600 Max. Out of Pocket Concept Part 2: Health Savings Account Can pay for For 2008 Single Family eligible Max. Contribution $2,900 $5,800 expenses not For 2009 Single Family covered by the health plan Max. Contribution $3,000 $5,950 Made by: Employer, Employee, and/or other party *Contributions do not need to be prorated based on the date coverage began, as long as qualifying coverage is maintained through December 31st of the following year. 2 Why choose an HSA-Compatible health plan? Premium Savings According to employers surveyed by HSA Bank, over 59% reported saving an average of 10 – 39% Lower future renewal costs Premium increases in HSA plans averaged under 3% while HMO, PPO and Indemnity plans hovered over 7%. (The Maine View) Ability to offer health insurance to employees 27% of small group market did not previously offer insurance coverage to employees (ehealthinsurance) Employee opportunity to control healthcare spending Decreased rise of health care costs through lower utilization 3 Advantages of an HSA For an Employer Tax benefits Employee-owned funds promote increased motivation for involvement in healthcare decisions resulting in: Healthcare dollars being spent more wisely Employees ‗shopping around‘ for healthcare based on quality of care and price HSAs allow ―matching‖ contribution options by employers and employees through a cafeteria plan 4 Advantages of an HSA For an Employee Funds roll over year to year No need to ―use it or lose it‖ Tax benefits on the contributions, earnings, and distributions Potential for increased take-home pay Long-term investment opportunity 5 Additional HSA Funding Options… IRA funds may be rolled to an HSA on a one-time basis Subject to the annual HSA contribution maximum Only traditional IRAs qualify at this time Individuals must remain covered by a qualifying HDHP until the last day of the 12th month following the month of rollover to avoid tax penalties HRA and Health FSA may be rolled to an HSA Employers must amend their plan documents to allow this Rollovers must be made directly from the employer to the custodian/trustee The IRS can help you determine if this is a possibility *Always consult a qualified tax advisor, and/or the IRS for details and reporting requirements in regard to taxation, fund rollovers and other stipulations. 6 Designing Your HSA Offering HSAs, HRAs, FSAs HSA HRA FSA Account Employee Employer Employee owner Employee, Employee, Funding Employer Possible Employer, Other Employer Roll over Generally Yes No year-to-year No Generally Portable Yes No No 8 How HSAs & FSAs Can Work Together Limited Purpose FSA (can have with an HSA) Pay for dental and vision expenses without having to use HSA funds Health FSA (cannot normally have at the same time as an HSA) Extension provides 2.5 months beyond the end of the plan year to use FSA funds Recent legislation allows employees to contribute to HSAs during the extension if their FSA balance is zero during that time or the total FSA balance is transferred to an HSA. Example of when HSA contributions can be made if an individual still has a Health FSA. This assumes that the FSA plan is not renewed after the extension. Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec. Jan. – Dec. Plan $0 bal. Jan. 1-March 15 March 15th extension $5 bal. Feb. 6th, $0 bal. Feb 7th May –April Plan $0 bal. May 1-July 15 July 15 extension $32 bal. May 2nd Plan Year Eligible to contribute to HSA NOT Eligible to contribute to HSA 9 How HSAs & HRAs Can Work Together Three types of HRAs you can have with an HSA Post deductible HRA—pays for out-of-pocket expenses after the HDHP deductible has been met Retirement HRA—Designated for medical expenses after retirement Suspended HRA—Cannot make contributions or take distributions from the HRA while contributing to the HSA 10 Design Makes a Difference Business Relations Can Provide Customized HSA Design Ideas Things to consider How many employees will be offered an HSA- compatible health plan? How many health plan options are being offered? What are your objectives for offering the HSA plan? What is your goal for % enrolled? 11 Plan Design Stats A 2006 survey of nearly 200 agents and employers regarding plan design indicates that More than 83% of employers contribute to their employees‘ HSAs Of those employers, 78% contributed at least 20% of the deductible in the 1st year Of those employers, 71% contributed at least 20% of the deductible beyond the 1st year Nearly 72% of employers pay the set-up fees Nearly 25% of employers pay the monthly fees 12 Employee Communication Benefits of Communication & Education HSA plan selection--Based on an HSA Bank survey, when an employer spent at least 90 minutes explaining the HSA concept, the number of employees that selected an HSA plan grew by more than 21% Financial gain Immediate: communication/education leads to employee HDHP acceptance, which will decrease premium costs (supply and demand) Long-term: Employees are in control of healthcare spending and thus utilization decreases Consumers paid an average of $348 less in 2005 for HSA-eligible health insurance plans compared to 2004 (ehealthinsurance – July 27,2005) Overcoming the stigma of an HDHP Pre-enrollment and ongoing communication/education enables employees to see beyond a higher deductible to the benefits an HSA plan has to offer 14 Employee Communication Tips Begin education early Combine multiple forms of communication: printed, web, multi- media, in-person Emphasize the benefits of choice and empowerment HSAs require employees to approach their healthcare in a new way, which puts them in control of their healthcare dollars Employees need to: Ask about price Ask if procedures are necessary Discuss with their physician if alternatives exist Compare current plan design with HSA-compatible plan design Illustrate the tax benefits and long-term savings potential Involve spouses in the communication process 15 Employer Communication Kit HSA Bank offers a comprehensive communication kit, which guides employers through the stages of their HSA program and provides important educational materials: 1. Implementation 3. Enrollment Employer Welcome Kit Enrollment Instructions Outline of what employees will receive Sample Emails Sample Employee Welcome Kit 2. Pre-enrollment Fact Sheet Brochure 4. Ongoing Web Tools Including Calculators Monthly Employee Communications PowerPoint and Macromedia® flash presentations 16 Are HSAs changing spending behavior? Increased Consumerism in Healthcare (Research results from McKinsey & Co., June 2005) Consumer-directed health plan holders were more value conscious and attentive to wellness & prevention and therefore: 50% more likely to ask about costs 30% more likely to get an annual exam 25% more likely to engage in healthy behaviors 20% more likely to comply with treatment regimens 300% more likely to choose less expensive options 17 Account Trends Based on HSA Bank’s customer base of over 186,000 accounts as of December 31, 2007 96.5% of all open accounts rolled over funds from 2007 to 2008 On average, accounts rolled $2163 into 2008 Average contribution per month = $214 Average distribution per month = $173 Average monthly savings = $41 Nearly 18% of accountholders saved all contributed funds and rolled over an average balance of $4013 into 2008. More than a third of accountholders saved at least 50% of their 2007 contributions. 18 Tax Benefits Tax Treatment and Advantages for an Employer Treated as employer-provided coverage for medical expenses under an accident or health plan Excludable from gross income Not subject to withholding for income tax Not subject to other employment taxes (i.e., Social Security and Medicare taxes (FICA), federal unemployment tax (FUTA), or the Railroad Retirement Tax Act) 20 Tax Treatment and Advantages for Employees/Accountholders Contributions are either pre-tax through a cafeteria plan or tax-deductible Earnings HSAs grow in the same tax-deferred manner as IRAs Interest and investment income are also tax-free or tax deferred Distributions Withdrawals for qualified medical expenses are always tax- free. After age 65, funds may be withdrawn for any reason without penalty, subject to regular income tax. 21 How to Get Started Enrollment Options Group Online Enrollment (generally most efficient method regardless of size) Employer initiates enrollment via our group set-up site Choose type of approval Choose how fees will be paid Employee Completes information on customized enrollment site Electronic Enrollment Originated From Paper (typically used by larger groups when group online enrollment is not chosen) Employee completes paper application Employer creates electronic data files and images of the paper applications Individual Online Enrollment (used when the employee pays the fees) Employee completes information on individual online enrollment site Paper Applications Employee fills out paper application and sends to HSA Bank 23 How are Fees collected If Employers are paying: The employer can pay fees up front for the remainder of calendar or plan year Employer can be invoiced Per employee pricing available on a monthly or quarterly basis If Employees/Accountholders are paying: Set-up fees are paid with the submission of the application Monthly fees will be deducted from the account 24 Coordinating HSA Contributions Since both employees and employers can make contributions, it is important to coordinate in order to avoid excess contributions and tax penalties. The maximum can be contributed through a combination of sources or a single source as long as the annual limit is not exceeded. EMPLOYER HSA CONTRIBUTIONS Contribution Limits ≤ INDIVIDUAL / EMPLOYEE Up to the IRS determined CONTRIBUTIONS maximums 2008: $2,900 single $5,800 family IRA Transfers 2008: $3,000 single $5,950 family *If an individual has HSA accounts with different administrators, all contributions count toward the annual contribution maximum. 25 Employer Contributions Online (ACH Pull) Convenient in-house system in Employer Login area Provided list of all employees tied to Federal ID # Columns after each name for ER, EE, EX allows for simple designation of employer, employee and employee pre-tax contribution amounts ACH Direct Employer sends ACH direct to employee‘s accounts Utilize discretionary data field in ACH file to code contribution sources Company ACH or Wire Transfer + File Company sends one ACH or Wire Transfer + File The transaction file dictates how the money is distributed to each account Submit a Check With Contribution Form 26 Employer’s 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 employer‘s HDHP. There is a 35% penalty for failing to meet comparable contribution requirements. Note: The employer must make comparable contributions for all employees with HDHPs who open HSAs under the employer‘s plan. Contact the IRS to determine the requirements for employees who have an HSA-Compatible health plan but have not opened an HSA by December 31st. 27 Exceptions to the Comparability Rule Exceptions Due to new legislation, employers may contribute more for employees who are non-highly-compensated employees (non-HCEs) as long as contributions compare within employment categories. Non-HCEs are defined under Internal Revenue Code §414 (q) Comparability rules do not apply to employer contributions made through a Section 125 Cafeteria Plan. Employers may make matching contributions through a Section 125 Cafeteria Plan (Non-Discrimination rules apply) 28 Comparable Contributions Example Family Single / Self + One / Self + Two / Self + Three / Full-Time Full-Time Full-Time Full-Time Non- Non- Non- Non- HCE HCE HCE HCE HCE HCE HCE HCE Deductible $1200 $1200 $2500 $2500 $2500 $2500 $2500 $2500 Same Dollar $100 $200 $150 $250 $175 $275 $200 $300 % of 50% 75% 25% 30% 50% 60% 75% 80% Deductible $600 $900 $625 $750 $1250 $1500 $1875 $2000 *Employer may contribute up to the maximum amount as determined by the IRS. For 2008: $2900 for individual coverage and $5800 for family coverage For 2009: $3000 for individual and $5950 for family. **Apply the same concept for part-time employees within each category 29 Employee Contributions Online Contributions (through Internet Banking) Recurring or one-time, as needed Check With Contribution Form tear-off (on each statement or downloaded from website) With Deposit Ticket 30 Savings Account Option Interest bearing ―bank‖ account Accounts are opened as an FDIC-insured bank account through Webster Bank, N.A. Current interest rate and annual percentage yield information is available on our website, www.hsabank.com or by calling 800-357-6246. Interest rates are subject to change. Fees may reduce earnings. 31 Self-Directed Investment Option TD Ameritrade Corporate Services Access to stocks, bonds and over 11,000 mutual funds Trades are made online or over the phone Transfer funds from your HSA to your investment account: Online through Internet Banking By calling the Client Assistance Center HSA Bank does not charge a fee; however, trading fees may apply 32 Mutual Fund Selection Devenir Investment Advisors Selection Options Employer can choose to offer our standard selection of historically top-performing mutual funds For an additional fee, employers can choose to select mutual funds similar to their 401(k) offering Trades are completed online through HSA Bank‘s Internet Banking system HSA Bank does not charge a fee. An annual fee of $24 is charged by the Mutual Fund Selection vendor; however, no trading fees apply 33 Methods of Distribution Debit Card from Visa POS with signature (no transaction fee) ATM with PIN ($2 fee) POS with PIN ($2 fee) Checks, $7.95 for 50 + 10 deposit tickets (no transaction fee) Withdrawal Forms ($10 fee) 34 Communication & Reporting Accountholder Account statements IRS reporting Email confirmation of account opening and ongoing activity Employer Email confirmation of deposits Employer newsletter Email updates on consumer-driven health care and HSA account features Aggregate reporting available upon request 35 Calculation Tools Is an HSA Right for Me Compares a traditional health plan with an HSA-compatible plan to determine potential savings http://www.hsabank.com/calculators/decision_tool.aspx Future Value Calculator Calculates tax savings on contributions and tax-deferred growth as well as the future value of your Health Savings Account http://www.hsabank.com/calculators/future_value.aspx 36 www.hsabank.com HSA Bank has created a website to serve the specific needs of and provide relevant information to: Prospective accountholders Calculation Tools HSA Information Enrollment Accountholders Internet Banking Self Service (forms, check/debit card orders, secure contact form) Employers Employer Administration Area Group Online Enrollment Group Online Contributions Communication Kit 37 Employer Login Area Online access for employers to: View and manage their list of employees with HSAs Upload contribution data and census files Sign-up for updates Sign-up for Group Online Enrollment Make online contributions to employee HSAs (separate sign-up required) Download the communication kit 38 Customization Options Application materials Brochure Inserts Welcome letter Custom toll-free number 39 Expertise & Commitment Industry leadership Have over $500 million in FDIC insured deposits and over $65 million additional dollars in non-FDIC insured investment accounts Administer more than 210,000 accounts in all 50 states 40 Experience Ten years in the HSA-industry Began with Medical Savings Accounts in 1997 Continued with HSAs in 2004 Maintain relationships with over 300 health plans/TPAs Work with more than 15,000 employer groups 41 Service & Support Business Relations Department: Exclusively assists our employer, agent, broker, broker/dealer, health plan & TPA clients. (866) 357-5232 Monday-Friday 7 a.m. – 7 p.m. CST Regional Vice President & Assistant Vice President: Provide local assistance for our employer, agent, broker, broker/dealer, health plan & TPA clients. Client Assistance Center: Provides dedicated customer service to individual and prospective accountholders. Spanish Language Support: Our Client Assistance Center and Business Relations teams provide Spanish language support for employer relationships, accountholders and prospective accountholders. Experience: Our Business Relations Coordinators and Client Assistance Center receive the most comprehensive and up-to-date HSA training in the industry. Our representatives have a strong customer service background and many have worked in finance, insurance, and benefits administration. 42 Thank you for considering… zixbypass *Investment products are not FDIC insured, are not a deposit or other obligation of or guaranteed by the bank, and are subject to investment risks including possible loss of the principal amount invested.