H ealth S avings A ccounts

2. HealthSavingsAccounts Open Your Mind To A New Idea

3. Pretend you are driving down a road and… • you come to a street corner and see a stop sign… what color is it?

5. You continue down the road and on the next corner there is a yield sign. What color is it?

6. Although the United States adopted international road signs about 15 years ago almost everyone over age 40 still says yield signs are yellow. Our minds can become conditioned and keep us from seeing the obvious.

7. Do we have a health care crisis? • Have you ever not been able to find Health Care? There is no shortage of Health Care in this country. • Anyone with the ability to pay can get all they want. • Isn’t what we have an affordability problem?

11. Here’s Reality • The rates you paid last year are more than the year before. The rates you are paying this year are more than last. And if you do nothing differently what do you think next year’s rates might be…

12. More Reality… When is the last time you really tried something different? Not just tweaking your deductible or co-insurance? HSA’s have the promise of delivering powerful cost relief without compromising employee security against medical expense

13. The Facts on HSAs • Effective January 1, 2004 • Part of Medicare Reform Bill signed on 12/8/2003 • Allows MSAs to evolve to HSAs with fewer restrictions and greater appeal

14. A Two Part Solution • Health Savings Account pays for routine or small expenses until deductible is met. Some call it a “Medical IRA” • A Qualified High Deductible Health Plan is intended to cover catastrophic illness or injury

15. High Deductible Plan • Defined by the IRS • Minimum deductible is $1,000 for individual, $2,000 for family • Maximum out-of-pocket is $5,000 for individual, $10,000 for family • Family aggregate deductible is required

16. How an Aggregate Deductible Works • Enrollment status determines applicability of aggregate family deductible • The entire family calendar-year deductible must be met by one or more family members each calendar year before benefits are paid

17. High Deductible Plan • Benefit options that cannot be offered include Office visit co-pay/encounter fee and prescription drug co-pay • Benefit options that can be offered include preventative care that pays before the deductible is met and prescription drug discount program

18. What other kinds of insurance coverage may an individual have with an HSA? • Accidents • Disability • Dental • Long-Term Care • Specified disease of illness • Insurance that pays a fixed amount per day of hospitalization • Cafeteria Plan • Discount programs

19. HSA Eligibility • An individual is “eligible” if he or she is covered under a qualified high deductible health plan (HDHP) and is not • Covered by another health plan (a few exceptions exist) • Entitled to Medicare benefits • Claimed as a dependent on another persons tax return

20. HSA Parameters • Contributions • Up to 100% of deductible • Maximum of $2,600 for an individual and $5,150 for a family • Can be made by the employer and/or the employee • Distributions • Generally any expense incurred for maintaining your health qualifies for tax free distribution • Funds withdrawn for non-qualified expenses are subject to taxes and penalties

21. Other Eligible Medical Expenses for Tax Free Distributions • Long-term care insurance • Premiums for COBRA • Coverage while receiving unemployment compensation

22. Other Distribution – Tax Treatment • Ordinary tax for non-medical distribution after age 65. HSA money supplements other retirement funds! Reward for good health! • Ordinary tax plus 10% penalty for non-medical distribution prior to age 65

23. HSA Contributions from Employer • Treated as employer-provided coverage for medical expenses under an accident or health plan • Tax deductible for employer • Excludable from employee’s gross income • Not subject to withholding (income tax) • Not subject to other employment taxes (FICA, FUTA)

24. Employer must provide “Comparable Contributions” • Can vary by part time and full time status • Same amount or same percentage of deductible • Can vary by single or family • Can not vary based on years of service or title and/or level within company

25. HSA Contributions – Employee • After-Tax Contribution • Tax Deductible for the employee • Employee not required to itemize • Does not need to be pre funded (Ok to fund up to tax filing … April 15) • Pre-tax (through cafeteria plan) • Contributions to an employee’s HSA through a cafeteria plan are treated as employer contributions so can not be deducted on personal tax return

26. Are HSAs right for you - Employer • Employer reduces current insurance premium by moving to higher deductible • Employer reduces current insurance premium by removing 1st dollar prescription and office visit co-pay • Employer reduces future premiums. % increases are applied to smaller premiums • Employee expectations and utilization change. Focus on insurance returns to cover catastrophic expense.

27. Are HSAs right for you - Employer • Education of Employee is required • Services of an HSA trustee and administrator required • Employer HSA contribution can be reduced in future years once plan is established • Multiple plan choices can be given employee who wishes to “buy up or buy down”

28. Are HSAs right for you - Employee • Changes many medical expenses into tax deduction • HSA funds grow tax deferred and roll over from year to year • Self Interest encourages wise use of own money… reducing overall cost

29. Are HSAs right for you - Agent • Acquire clients from less informed agents • Retain clients by providing options and information your clients need • Accumulate clients with “spending accounts” for future Long Term Care Insurance • Establish yourself as resource for “centers of influence” … CPA’s, Attorney’s, etc.

30. Potential Savings • An MS Excel spreadsheet is available to help calculate. (Courtesy Time Insurance) • Amount of savings varies by specific group

31. Conclusion HSAs are your chance to make quality healthcare more affordable. Both employers and employees have plenty to be excited about. In behalf of The Brodsky Agency, where we are actively advocating HSAs, I thank you for your attention to this great opportunity. Lawrence S. Brodsky CLU RHU