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Bill Sweatnum, Treasury: “Let a thousand flowers bloom” ecfc conference 2004 Health Savings Accounts Issues, Regulations and the Future History is thinking… Bush Admin: Something to talk about in health care Mark Wincek, Esq. Kilpatrick Stockton Costs are rising faster than other items

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health savings accounts

Bill Sweatnum, Treasury:

“Let a thousand flowers bloom”

ecfc conference 2004

Health Savings Accounts

Issues, Regulations and the Future

history is thinking
History is thinking…
  • Bush Admin: Something to talk about in health care

Mark Wincek, Esq. Kilpatrick Stockton

  • Costs are rising faster than other items
  • “Walled off folks to the real cost of health care” Hewitt
  • Conclusion? Consumerism…another word for the employee paying more
  • When EEs pay more they get less care and where does that lead to the future?
  • Is this the only alternative?
  • What led us to offer HSAs:
    • Spikes in Cost of Insurance
    • Stock Market
    • Utilization
    • Open discussion
question
Question
  • Why is the consumer to blame for a market driven health care system?
  • Another way to state this is why does the consumer need to pay more to bail out the real issue…rising costs of insurance?
  • Why are we changing the game now?
  • And who made this so complicated that the average consumer can’t understand
overview
Overview
  • HSAs are the evolution of MSAs. Get up to speed on MSAs
  • MSAs suffered from impediments
    • Sunset every two years
    • Limited to 750,000
    • Limited to groups under 50
  • Trivia:
    • IRS says that 140,000 were sold in 10 years
    • 70,000 remain
group vs individual
Group vs. Individual
  • Biggest confusion
  • Group
    • Employer provided
    • Not portable
    • Subject to COBRA
    • ERISA
    • Reporting
    • Non discrimination tests
  • Individual
    • Portable
    • None of the above
    • Sub S owners/Partners Ok
overview 2
Overview 2
  • Any individual that:
    • Is covered by a HDHP
    • Is not covered by other health insurance
      • does not apply to specific injury insurance and accident, disability, dental care, vision care, long-term care
    • Is not eligible for Medicare
    • Can’t be claimed as a dependent on someone else’s tax return
  • Contrast with Archer MSA rules
    • Had to be employed by small employer

Ray Ranthum IRS Presentation

what is qualified high deductible plan
What is Qualified High Deductible Plan?
  • Health insurance plan with minimum deductible of:
    • $1,000 (self-only coverage)
    • $2,000 (family coverage)
  • Annual out-of-pocket (including deductibles and co-pays) does not exceed:
    • $5,000 (self-only coverage)
    • $10,000 (family coverage)
    • These are lower than Archer MSAs
  • HDHPs can have:
    • no deductible for preventive care
    • higher out-of-pocket (copays & coinsurance) for non-network services

Ray Ranthum IRS Presentation

qualified health plan qhp
Qualified Health Plan (QHP)

Single

Family

No “embedded deductibles”

Discounts ok

Even though single can pay for family expenses

Participation ends if come off QHP

Some preventative ok

Not less than $1,000 and not more than $5,000

Not less than $2,000 not more than $10,000

EE pays difference

EE pays difference

hsa max contributions
HSA Max Contributions
  • Maximum amount that can be contributed to an HSA (and deducted) = lesser of:
    • Amount of High Deductible

or

    • Maximum specified in law (indexed annually by M-CPI)
      • $2,600 (self-only coverage) - 2004
      • $5,150 (family coverage) - 2004
  • Reduced by any contribution to an Archer MSA

Ray Ranthum IRS Presentation

hsa contribution rules
HSA Contribution Rules

Ray Ramthun IRS Presentation

hsa contribution rules11
HSA Contribution Rules
  • For individuals age 55 and older, additional “catch-up” contributions to HSA allowed
    • 2004 - $500
    • 2005 - $600
    • 2006 - $700
    • 2007 - $800
    • 2008 - $900
    • 2009 and after - $1,000
  • Contributions must stop once an individual is eligible for Medicare

Ray Ranthum IRS Presentation

hsa contribution rules12
HSA Contribution Rules
  • Contributions can be made through cafeteria plans
    • This means two possibilities: HSA through the employer and if someone has one at home
  • Rollovers from Archer MSAs and other HSAs permitted
  • Employer contributions to HSA must be “comparable” for all employees participating in the HSA
    • If not comparable, there will be an excise tax equal to 35% of the amount the employer contributed to employees’ HSAs

Ray Ranthum IRS Presentation

comparable rule
Comparable Rule
  • In order to meet the requirement that the employer make comparable contributions, the employer must make contributions:
    • which are the same amount

or

    • which are the same percentage of the annual deductible
  • Count only employees who are eligible individuals covered by the employer and who have the “same category of coverage” (i.e., self-only or family)
  • Part-time employees are tested separately
  • “Part-time” means customarily employed fewer than 30 hours per week

Ray Ranthum IRS Presentation

distributions
Distributions
  • Distribution is tax-free if taken for “qualified medical expenses”
    • Now includes over-the-counter drugs
  • Cannot be used to pay for other health insurance except:
    • COBRA coverage
    • Qualified long-term care insurance
    • Health plan coverage while receiving unemployment compensation
    • For individuals eligible for Medicare:
      • Medicare (Part A, Part B, Medicare+Choice)
      • employee share of premiums for employer-based coverage
      • Cannot pay Medigap premiums

Ray Ranthum IRS Presentation

hsa distributions
HSA Distributions
  • Distributions are tax-free if taken for:
    • person covered by the high deductible
    • spouse of the individual
    • any dependent of the individual
  • Spouse and dependents don’t need to be covered by the HDHP
  • If not used for qualified medical expenses, then amount is included in income
  • 10% additional tax if taken for non-medical expenses, except when taken after:
    • Individual dies or becomes disabled
    • Individual is eligible for Medicare
  • Compare to 15% additional tax for Archer MSAs

Ray Ranthum IRS Presentation

hsa distributions16
HSA Distributions
  • HSA custodian must report all distributions – not required to check them for eligibility// Debit card works well
  • Under Archer MSA rules, the MSA custodian does not have to determine whether MSA distributions are used for medical purposes; the individual does that
  • Given the less stringent distribution rules for HSAs, we assume Archer MSA holders will rollover to HSAs

Ray Ranthum IRS Presentation

hsa distributions17
HSA Distributions
  • Should the HSA participant keep receipts?
    • YES! Need to prove that deductible was met
    • Provides a great opportunity administrators because it may be helpful to have claims adjudicated
    • Must report withdrawals on a 1099 type form adjudication may be necessary
    • Not all medical expenses paid out of the HSA have to be charged against the deductible (e.g. prescription sunglasses)
    • Flex plan would be great in conjunction here

Ray Ranthum IRS Presentation

advantages of hsas
Advantages of HSAs
  • HSA accounts encourage savings for future medical expenses
    • When employer-sponsored coverage is lost during periods of unemployment
      • COBRA continuation coverage
      • other coverage
    • Insurance coverage or medical expenses after retirement (before Medicare eligibility)
    • Long-term care expenses
    • Out-of-pocket expenses for Medicare
    • Non-covered services under future coverage

Ray Ranthum IRS Presentation

advantages of hsas19
Advantages of HSAs
  • Accounts are owned by the individual (not an employer)
    • Individual decides:
      • How much to contribute
      • How much to use for medical expenses
      • Which medical expenses to pay from the account
      • Whether to pay for medical expenses from the account or save the account for future use
      • Which company will hold the account
      • What type of investments to grow account

Ray Ranthum IRS Presentation

advantages of hsas20
Advantages of HSAs
  • Accounts are completely portable, regardless of:
    • Whether the individual is employed or not
    • Which employer the individual works for
    • Which state an individuals moves to
    • Age or marital status changes
    • Future medical coverage

Ray Ranthum IRS Presentation

but will employers want to contribute
But will Employers want to contribute?
  • Very few employers in HRAs like the roll over feature
  • Ric Joyner Concept Plan
  • See next slides
concept hsa benefits plan chart
Concept HSA Benefits Plan Chart

HDHP=5,000

deductible

HSA qualified plan with preventative care

ER Portion=2,500

Can only be used the first year for deductible and health coverage not all section 213d expenses. Second year is the employee’s and can be used or saved

EE Portion=2,500

Employee portion is for any other expenses and can be added to the employer account each year

slide23

Concept HSA with Flex Spending

Individual HSA

Premium PT

For EE the cost of the premiums

HFSA

HFSA for KNOWN FIXED EXPENSES primary use is to avoid using HSA

Daycare

For daycare expenses

ER Portion=2,500

Did you know the HSA can be used for the purchase of premiums? Like voluntary?

EE Portion=2,500

advantages of hsas24
Advantages of HSAs
  • No “use it or lose it rules” like Flexible Spending Arrangements (FSAs)
    • Unspent balances in accounts remain in the account and can grow through investment earnings
    • Encourages account holders to spend their funds more wisely on their medical care///remains to be seen
    • Encourages account holders to shop around for the best value for the health care dollars///no mechanism to shop

Ray Ranthum IRS Presentation

advantages of hsas25
Advantages of HSAs
  • Accounts can grow through investment earnings
    • Many different investment options could be pursued
    • Individual chooses investment option that best meets their needs
  • HDHP premiums should be cheaper than health insurance with traditional deductibles

Ray Ranthum IRS Presentation

hsa issues
HSA Issues
  • Prevention
  • Rx drugs
  • Coordination with HRAs & FSAs
  • Individual vs. Family deductibles
  • Substantiation
  • Ric: Disability? Does childbirth count?

Ray Ranthum IRS Presentation

treasury activities
Treasury Activities
  • Initial guidance issued 12/22/03
  • Next guidance later this month
    • Prevention
    • Treatment of Rx drugs
    • Coordination with HRAs & FSAs
    • Model HSA plan document
  • Additional guidance coming in June, 2004
  • Formal regulations in 2005

Ray Ranthum IRS Presentation

treasury activities28
Treasury Activities
  • Other activities
    • Web site
    • Voice mailbox
    • E-mail address
    • Referrals from 1-800-MEDICARE

Ray Ranthum IRS Presentation

comments from agents
Comments from agents…
  • Terry, One of the drawbacks to the HSA eligible plan is it cannot
  • > have = an RX Network. Thus, here in CA, even if I sell a Blue Shield
  • > policy that = is HSA eligible, Blue Shield cannot offer its RX
  • > discounts. Soooo, when the person buys their drugs, they are paying
  • > full boat and the full amount goes to the deductible. Thus, they
  • > will get pass (sic) the deductible faster than a normal plan.
  • >
  • > Anthony NAHUnet
contact
Contact
  • www.eflexgroup.com
  • 877-933-3539
  • efgsales@eflexgroup.com