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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 OPM is pleased to offer a new health care option.

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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


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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.

High Deductible Health Plans (HDHP) and Open Season


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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 2A:

Health Savings Account

Dollars for healthcare expenses

Part 2B:

Health Reimbursement

Arrangement

Credits for healthcare expenses


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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.

The Basics of High Deductible Health Plans


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With the exception of preventive care, coverage. 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

The Basics of High Deductible Health Plans Cont.


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HDHPs must have minimum deductibles of: coverage.

$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

The Basics of High Deductible Health Plans Cont.


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How Out-of-Pocket Costs Are Counted Towards the Catastrophic Limits

Which expenses count towards the catastrophic limit?


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Health Savings Account – Part 2A Limits

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 2A:

Health Savings Account

Dollars for healthcare expenses

Part 2B:

Health Reimbursement

Arrangement

Credits for healthcare expenses


The basics of a health savings account l.jpg

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.

The Basics of a Health Savings Account


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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

Funding Your HSA


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By law, you must enroll in an HDHP to be through the “premium pass through” and your voluntary contributions.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.

Eligibility for aHealth Savings Account


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Tax-deductible contributions through the “premium pass through” and your voluntary 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.

The Features of a Health Savings Account


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Catch-Up Contribution to HSA through the “premium pass through” and your voluntary contributions.

Year Amount

2005 $600

2006 $700

2007 $800

2008 $900

2009+ $1,000

In addition to the maximum contribution, (the plan’s annual deductible) individuals between the ages of 55 and 65, can make “catch-up” contributions to the HSA each year.


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Features of a Health Savings Account through the “premium pass through” and your voluntary contributions.

HSA

Tax-free growth

Earnings

Health plan “premium pass through”

Voluntary Contributions

No tax on the “premium pass through.” Voluntary contributions are not taxed.

Contributions

Tax-Free Distributions

(For Qualified Medical Expenses)

Regular Tax*

(Non-Medical expenses over age 65)

* Plus a 10% Tax Penalty for Non-Qualified medical expenses before age 65


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Tax-free withdrawals for “qualified medical expenses.” through the “premium pass through” and your voluntary contributions.

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

The Features of a Health Savings Account


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Tax-free interest through the “premium pass through” and your voluntary contributions.

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.

The Features of a Health Savings Account


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Other Types of Insurance Coverage through the “premium pass through” and your voluntary contributions.

Insurance Allowed with an HSA:

  • Long-term care

  • Specified disease or illness

  • Insurance that pays a fixed amount per day of hospitalization

  • Limited HCFSA (not currently offered under FSAFEDS)

  • Accident

  • Disability

  • Dental care

  • Vision care

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


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Determining the Maximum Allowable Contribution to an HSA Account

  • The maximum allowable contribution is determined by the HDHP’s effective date.


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To calculate the maximum allowable contribution: Account

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.

Determining the Maximum Allowable Contribution to an HSA Account


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An FEHB member enrolls in an HDHP with an HSA. The annual deductible for Self and Family coverage is $2400.

Example 1: Determining the Maximum Allowable Contribution to an HSA Account

The maximum allowable contribution is $2200


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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.


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An FEHB member enrolls in an HDHP with an HSA. The annual deductible for Self and Family coverage is $2400.

Example 2: Determining the Maximum Allowable Contribution to an HSA Account

The maximum allowable contribution is $1200


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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.

*The member will have to meet the entire deductible.


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An FEHB member enrolls in an HDHP with an HSA. The annual deductible for Self and Family coverage is $2400.

Example 3: Determining the Maximum Allowable Contribution to an HSA Account

The maximum allowable contribution is $2400


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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.


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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.

HSA Distribution Process


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Health Reimbursement Arrangement – Part 2B whether HSA distributions are used for qualified medical expenses.

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 2A:

Health Savings Account

Dollars for healthcare expenses

Part 2B:

Health Reimbursement

Arrangement

Credits for healthcare expenses


The basics of a health reimbursement arrangement l.jpg

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.

The Basics of a Health ReimbursementArrangement


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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.

The Features of a Health Reimbursement Arrangement


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The Differences Between an HSA and HRA only. Must provide documents of medical expense to health plan.


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Health Care Flexible Spending Account (HCFSA) only. Must provide documents of medical expense to health plan.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.


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Features of a Health Reimbursement Arrangement only. Must provide documents of medical expense to health plan.

HRA

Credits

Credits to the HRA

Credits are not taxable

Tax-Free Distributions

(For Qualified Medical Expenses)


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Example of an Enrollment, Set-Up, Contribution, and Distribution Process

Open Season election form completed by FEHB member.

HDHP/HSA or HRA set-up begins with receipt of enrollment form.

Trustee/custodian/or health plan paperwork sent to FEHB member.

The first “Premium Pass Through” deposited to the HSA, or credits to HRA by the health plan.

Trustee/custodian paperwork completed by the FEHB member & returned to health plan.

Only medical expenses incurred on or after the HSA or HRA is set-up are reimbursable through distributions.

Enrollee may begin voluntary contributions after the HSA is set-up.

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List of High Deductible Health Plans Distribution Process

GEHA and Mail Handlers are available nationwide.



Resources search the web refer to the 2005 plan brochures and 2005 guides l.jpg

FSAFEDS Distribution Process

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.

Resources: Search the Web, Refer to the 2005 Plan Brochures and 2005 Guides


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