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Welcome To Consumer Driven Health Care aka Individual Health Savings Accounts

Welcome To Consumer Driven Health Care aka Individual Health Savings Accounts P.L. No. 108-173, section 223. 06/27/03—H.R. 1 passes House 216-215 06/27/03—S. 1 passes Senate 76-21 07/14/03—Medicare Conference begins 11/21/03—Conferees complete work

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Welcome To Consumer Driven Health Care aka Individual Health Savings Accounts

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  1. Welcome To Consumer Driven Health Care aka Individual Health Savings Accounts P.L. No. 108-173, section 223

  2. 06/27/03—H.R. 1 passes House 216-215 06/27/03—S. 1 passes Senate 76-21 07/14/03—Medicare Conference begins 11/21/03—Conferees complete work 11/22/03—House passes final bill 220-215 11/25/03—Senate passes final bill 54-44 12/08/03—President Bush signs Medicare bill into law How HSA Came to Pass

  3. Changes for 2009

  4. HSA Annual Contribution Increased • Annual Contribution is Better • Increase in annual HSA contribution.  Previously, the maximum HSA contribution was the lesser of the deductible of the individual's HSA-eligible plan or a statutory maximum.  The new rules make the limit the statutory maximum contribution, regardless of the individual's deductible.  For 2009, the maximum contribution for an eligible individual with self-only coverage is $3,000, and the maximum contribution for an eligible individual with family coverage is $5,950.  These limits are indexed for inflation.

  5. HSA • Allows Rollovers thru 2011 • Allow rollovers from health FSAs and HRAs into HSAs through 2011.  Employers can transfer funds from Flexible Spending Arrangements (FSAs) or Health Reimbursement Arrangements (HRAs) to an HSA for employees switching to coverage under an HSA-compatible health plan.  The amounts rolled over to HSAs from FSAs or HRAs are over and above the amounts allowed as annual contributions.  The maximum contribution is the balance in the FSA or HRA as of September 21, 2006, or if less, the balance as of the date of the transfer.  The provision is limited to one distribution with respect to each health FSA or HRA of the individual.  If an individual does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax. Allows Rollovers

  6. HSA • No Pro-Rated Amounts • Full HSA contribution regardless of month individual becomes eligible.  Normally, the HSA contribution is pro rated based on the number of months that an individual was an eligible individual during a calendar year.  The new provisions provide an exception to this rule that will allow individuals who become covered under an HSA-eligible plan in a month other than January to make the maximum HSA contribution for the year based on their coverage in the last month of the year.  This eliminates a common barrier to switching to HSA-eligible coverage.  If an individual does not stay in the HSA-eligible plan 12 months following the last month of the year of the first year of eligibility, the amount which could not have been contributed except for this provision will be included in income and subject to a 10 percent additional tax. Allows full Contribution Immediately

  7. HSA • Can Transfer from IRA to HSA • One-time transfer from IRAs to HSAs.  The new rules allow for a one-time contribution to an HSA of amounts distributed from an Individual Retirement Arrangement (IRA).  The contribution must be made in a direct trustee-to-trustee transfer.  The IRA transfer will not be included in income or subject to the early withdrawal additional tax.  The transfer is limited to the maximum HSA contribution for the year, and the amount contributed is not allowed as a deduction.  Generally, only one transfer may be made during the lifetime of an individual.  If an individual electing the one-time transfer does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax. Allows One Time Transfer

  8. HSA • More for Lower Paid • Allow greater employer contributions for lower-paid employees.  Previously, employer contributions under the comparability rules had to be the same amount or percentage of the deductible for all employees with the same category of coverage.  Consequently, employers could not contribute higher amounts to lower-paid employees.  The new rules provide an exception to the comparability rules allowing employers to contribute more to the HSAs of non-highly compensated individuals.  For this purpose, the definition of "highly compensated employee" is based on the same definition used for qualified retirement plans. Allows Employer Contribution Flexibility

  9. HSA Definition of HSA • For Eligible Individuals • Tax-exempt trust or custodial account • To pay qualified medical expenses • If covered by High-Deductible Health Plan • Not covered by non-HDHP (some exceptions) • Not entitled to Medicare (generally under 65) • May not be covered as Dep on another’s • taxes. Define HDHP Can Network Plan Qualify? Exceptions Can Self-Insured Plan Qualify?

  10. HSA • Deductible & OOP Requirements—2009 published limits • $1,150 Deductible minimum for Individuals • $5, 800 OOP Maximum for Individuals • $2,300 Deductible Minimum for Families • $11,600 OOP Maximum for Families • Not including 1st Dollar Preventive Care • Can have higher deductibles and lower out-of-pocket expense caps • You may not have a plan with office visit co-pays, or an Rx plan with co-pays. • Some carriers are adding back an Rx co-pay after the HSA deductible has been met. • Note: For 2009, the maximum annual HSA contribution for an eligible individual with self-only coverage is $3,000.  • For family coverage the maximum HSA contribution is $5,950. • Under recent legislation, these amounts are the maximum HSA contribution amount regardless of the amount of the HDHP deductible. Definition of HSA Define HDHP Can Network Plan Qualify? Exceptions Can Self-Insured Plan Qualify?

  11. HSA Definition of HSA • Network Plans Qualify • Has richer In-Network Benefits • Out of Network Benefits can Exceed limits • OON Benefits not used in determining Contribution Limits • In-Network Deductible used in Determining Contribution Limits Define HDHP Can Network Plan Qualify? Exceptions Can Self-Insured Plan Qualify?

  12. HSA Definition of HSA • Can Still Have: • Workers Compensation Plan Coverage • Automobile Insurance Coverage • Other Property Insurance • Tort Liability Insurance Coverage • Accident Insurance • Dental Insurance • Vision Insurance • Long Term Care Insurance • Daily Hospital Fixed Amount per Day • Specified Disease or Illness Coverage Define HDHP Can Network Plan Qualify? Exceptions Can Self-Funded Plan Qualify?

  13. HSA Definition of HSA • Self-Insured Plans • Employer sponsored Self-Insured Plans Qualify • Must meet Deductible and OOP requirements • Cannot have a deductible for preventive care Define HDHP Can Network Plan Qualify? Exceptions Can Self-Insured Plans Qualify?

  14. HSA • Contributions • Both Employee and Employer can Contribute • Family Members may Contribute on each others behalf-if they are both eligible individuals • HSA contributions by employees can be made on a pre-tax basis through Section 125 of the Code (cafeteria plan) • ER’s usually make same dollar amount or same % of the deductible contributions on behalf of all EE’s in same coverage category • However, employers can now give more to lower paid employees (see 8th slide) • There is a 35% excise tax of amount contributed for violations Who Can Contribute? How to Start HSA Who is Qualified Trustee or Custodian?

  15. HSA • HSA Start-Up • Many begin on a January 1st • Now easier to start plan mid-year • Same as starting IRA or Archer MSA • No permission from IRS needed • Can establish HSA without Employer involvement • Must use Qualified Trustee or Custodian • A fiscal year plan that satisfies the requirements for an HDHP on the first day of the first month of its fiscal year may apply that deductible for the entire fiscal year. Who can Contribute? How to Start HSA Who is qualified Trustee or Custodian?

  16. HSA • Qualified Trustee/Custodian • Defined in section 408(n) • Any Insurance Company • Any Bank or similar institution • See Regulation 1.408-2(e) relating to non-bank trustees • Does not have to be same institution that provides the HDHP Who can Contribute? How to Start HSA Who is Qualified Trustee or Custodian?

  17. HSA • Maximum Contributions-2009 • $3,000 ($250.00 per Month) • $5,950 ($495.83 per Month) • Catch-up Contribution allowed if age 55 + • No earnings requirements to contribute • Earnings grow tax free • All HSA contributions made on behalf of • individual are aggregated for limits • calculation • Catch-up contribution limit is $1,000 in 2009 for individuals and spouses between • ages 55 & 65 • Catch-up amount will increase $100 annually • until it reaches $1,000 in calendar year 2009 Maximum Contribution Earnings Requirements Distributions

  18. HSA • Earnings Requirements • None • Can contribute for 2008 thru April 15th, 2009 • Contributions must be made in cash-not stock • or other property • Contributions are “above-the line” deductible • whether the individual itemizes or not • If you may be claimed as a dependent you • may not deduct contributions to an HSA • There is a 6% penalty if you over-contribute • Can make it right before deadline (skip 6%) • Employer contributions not subject to FICA or • FUTA or Railroad Retirement Tax Act Maximum Contribution Earnings Requirements Distributions

  19. HSA • Distributions • Permitted at any time • Any amount not used to pay for qualified medical expenses of the account beneficiary, spouse or dependents is includable in gross income and is subject to an additional 10% tax on amount includable—unless distributions made after account beneficiary’s death, disability, or attaining age 65 • Burden of proof for proper use of distributions is on the account beneficiary not the trustee, custodian or the employer • Upon death any remaining balance in HSA becomes the property of named beneficiary • This does not include distributions made for final qualified medical expenses made within one year of death Maximum Contribution Earnings Requirements Distributions

  20. HSA Other Matters • Other Matters • Discrimination rules no longer demand that ER contribute same amount or same percentage of the deductible for all participating EE’s • HSA can be offered under a cafeteria plan thus contributions are then made on a salary-reduction basis • HSA’s are not subject to COBRA, but you can pay for your COBRA with HSA dollars • May use debit, credit or stored-value cards to receive distributions • Rollover contributions from IRAs, Archer MSA’s and other HSA’s are permitted

  21. Pre-tax contributions/deposits tax-free Earnings tax-free Distributions/expenditures not taxable upon withdrawal for appropriate IRS allowed medical expenses Better treatment than a 401(k) plan Several Big Tax Advantages

  22. Sales Expectations? How do you feel about HSA’s? Who do you think will buy them? HSA’s

  23. HSA • Results to date • 50% of purchasers are over age 40 • 77% are families with children • 42% make less than $50,000/year • http://press.fortishealth.us.fortis.com/fh/press-release-cm/newsroom/hastert • Report by eHealthInsurance Who buys HSAs Initial Sign up Aetna Results

  24. HSA • Early Results • 438,000 people sign up for HSAs in first 9 • months-November 2004 • 31% were previously uninsured buying health insurance on their own • 3.2 million in HSAs by December 2005 • 33% were small businesses not previously offering coverage • www.ahip.org Who Buys HSAs Initial Sign up Aetna Results

  25. HSA • Early Results • Use of preventive services up by 23% • 5.5% decrease in Rx costs and a 7% increase • in overall generic utilization • 3.7% medical cost increase, compared to • double-digit increases for a similar • population • Medical costs fell by 11% for one full- • replacement plan sponsor • http://www.aetna.com/news/2004/pr_2004D622.htm Who Buys HSAs Initial sign up Aetna Results

  26. HSA • NBGH Survey • 8% of large employers surveyed now offer HSAs • Another 18% plan to offer HSAs next year • 47% are considering them for future • 75% of employers say, “HSAs are effective vehicles to engage employees more in managing their health,” 49% “aren’t sure if they will help lower costs”. Watson Wyatt Booz Allen Hamilton

  27. HSA • Future of HSAs • HSAs will begin a new movement toward • building personal financial security • Expect consumers to demand “package • pricing” for high cost services • “CDHPs and HSAs will begin to restructure • both the healthcare world and the financial • services world in profound ways.” Watson Wyatt Booz Allen Hamilton

  28. HSA • Future HSA Projections • 14 million HSA policies covering 25 to 30 million people by 2010 – based on current law • 21 million HSA policies covering 40 to 45 million people by 2010 – based on the President’s health care initiative Watson Wyatt Treasury Department

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