1. Health Savings Account Administrator San Introduction to Health Savings Accounts (HSA) STERLING HSA ®
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4. HOW DOES THE BLUESHIELD 2000 PPO WORK? Pre Annual Deductible Insured pays 100% of negotiated costs (Except preventative care and wellness benefits) 100% Coverage* (70% Out of Network) 100% Coverage* Annual Deductible & Out of Pocket Max In Network $2,000/$4,000 Out Of Pocket Max** Out of Network $4,000/$8,000 Dental, Vision and COBRA, Long term Care, Medicare Premiums HSA Diagram for illustration purposes only. Please see coverage materials for more details. *100% of negotiated rate In-Network. ** Balance billing may apply Out-of-Network.
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Hinweis der Redaktion
Speaker introduction
Today we are going to review three things: What is a Health Savings Account (HSA)? How HSA’s work with a high deductible health plan (HDHP)? How the funds in an HSA account can be used or invested?
The best way to think about an HSA is as a “medical IRA”. A tax advantaged savings account, but one used to pay for medical dental or vision expenses. The “medical IRA” or HSA is funded out of premium savings vs. a traditional health plan. To have an HSA requires a high deductible health plan (HDHP). An HDHP generally costs 20-60% less than a traditional HMO or PPO. The premium savings for the employer or employee (who ever pays premium) can be used to fund each individual employee’s HSA account. The idea is the money is in an employees HSA account and is there if needed for a medical, dental or vision expense and if not needed the money is still in the employees account and acts as a retirement account. All contributions are the employees’ money and if the employee was to leave employment that money goes with them. The money contributed into an HSA is Federal tax free whether the contributions are from an employer or employee. HSA funds grow with interest Federal tax free and if used for medical, dental and vision can be used tax free. HSA funds can be used by the employee, spouse or dependents (whether or not the spouse or dependents even have the HSA compatible HDHP coverage). In 46 states excluding California HSA contributions are tax free, grow with interest tax free and can be used tax free. HSA were created as part of Medicare Modernization Act of 2003. 30% of all fortune 500 companies already offer HSA’s. Some of the leading companies nationwide that offer HSA’s are Intel, Sun, Fujitsu, Hewitt Packard, Amazon.com, Stanford University, Whole Foods etc. etc. HSA’s were created to address two problems: The first problem is that there are 70-75 million baby boomers about to retire. Govt. studies indicate that many baby boomers do not have to resources to retire. If the baby boomer does not have the resources to retire or pay for their medical care once retired then those costs would fall to the Federal Govt. and state. As most of you know there are already problems with Social Security and Medicare. The Federal govt. does not want to have to pay for all these medical expenses and cannot afford it so they created HSA’s. Healthcare costs have skyrocketed over the last 5-10 years with double digit growth almost every year. This has resulted in most employers degrading plans or shifting costs. HSA’s require a high deductible health plan which in general cost 20-60% less than a traditional HMO or PPO plan. Because HSA’s require a high deductible health plan that means that the insured is now responsible for their own healthcare spending up to a fixed point. The idea is the premium savings from the reduced cost of health coverage go into an HSA and if needed are available and if not needed are kept by the account holder. This gives the account holder an incentive to be a good consumer of healthcare and make cost conscious decisions when it comes to their healthcare vs. the traditional “blank check” approach when an employer pays for everything first dollar.
You can summarize the advantages of an HSA for an employer in one word. Money. An HDHP should save a small group <50 life, fully insured group anywhere from 20-60% in healthcare premiums vs a traditional HMO and/or PPO. Because of utilization changes once employees are on a consumer driven health plan it is estimated that future rate increases will be lower than traditional HMO or PPO coverage meaning additional savings in the future. If the employee partially contributes towards employee HSA accounts and employees elect to also contribute into their own HSA all dollars can be contributed pre Federal taxes through payroll – A Section 125 Plan is required. This lowers the employees gross income and taxes. It also lowers the matching taxes the employer pays in addition to lowering gross payroll from which workers comp is based. For many employees the HSA is a retirement fund, but for the employer it is not an unfunded liability unlike other traditional retirement plans. Whatever the employee has in his or her HSA when they leave employment or retire goes with the employee. No more or less regardless of what happens down the road. Also from a societal perspective we have become removed from the true cost of healthcare and once employees have to use their own HSA dollars for medical care they become more conscious consumers of healthcare.
For an employer its obvious why they would want to put in an HDHP/HSA. But why is it also good for employees? If employees are paying some or all of their own or dependent premium they will see a 20-60% drop in those rates. This can save hundreds of dollars a month, thousands a year. Savings which can be contributed in part or full into an HSA ~ Federal tax free. Employees like the flexibility of HSA’s. They can use it not only for medical, but their vision, dental and non traditional medicine such as chiropractic and acupuncture. HSA funds can also be used to pay for qualified expenses for a spouse or dependent whether or not the spouse or dependent are even on the HSA compatible health plan. Over time most employees should see their HSA balance grow quickly with all contributions and interest earned being Federal tax free. Last but not least unlike FSA’s where there is a “use it or loose it” provision with an HSA any money not used at the end of year rolls over to the next year and if an employee retires or changes jobs their HSA goes with them.
The Federal Govt. has three very simple rules to determine HSA eligibility for the account holder. These rules do not apply to a spouse or dependent. The account holder must have HSA compatible coverage and cannot have dual major medical coverage (unless that dual coverage is also HSA compatible). A spouse and/or dependent can have dual coverage. An HSA account holder also cannot have access to a general purpose healthcare FSA through their employer or their spouses employer. The account holder cannot be on Medicare A, B or D and set up or contribute to an HSA. The account holder cannot be claimed as a tax dependent on someone else’s tax return. Not as a spouse if filing jointly but as a tax dependent such as a small child.
The most complex aspect of implementing an HSA is if the group already has an existing healthcare FSA. No problem with a POP/Section 125/Cafeteria Plan. This is needed to make contributions pre Federal taxes, but a healthcare FSA can be a problem ( dependent care FSA is not an issue). If the client has a healthcare FSA stop everything and call the FSA administrator. You cannot have an HSA with an FSA unless the healthcare FSA plan document is amended to include a limited purpose provision. Not all Fast administrators will amend a healthcare FSA plan document mid year. The limited purpose provision when implemented simply states that for someone with a healthcare FSA that all medical expenses must run through the HSA until the annual deductible is met. Once the annual deductible is met then FSA funds can be used for medical, dental and vision. Either HSA or FSA funds can be used at anytime for dental and vision, but should probably come from the FSA as they do not count towards the annual deductible under the health plan.
Because of the numerous tax advantages of HSA’s the IRS puts a limit each year on how much can be contributed into an HSA. These contribution maximums are regardless of the HDHP annual deductible and when during the calendar year you start your HDHP coverage. Each year these maximums will increase. The one note of caution is if the account holder fully funds his or her HSA and then does not stay on the plan a full year and does not pull out the extra contribution, then a 10% penalty and taxes would apply to the over contribution amount. The IRS is also allowing a one time healthcare FSA, HRA or IRA rollover into an HSA. The FSA and HRA rollovers are one time and in addition to the annual HSA maximums. The IRA rollover is also one time only but is limited by the annual contribution maximum.
For any account holders 55+ the IRS allows a catch up contribution on top of the base contribution amounts already discussed. If an account holder and spouse are both over 55 years of age then they can both make a catch up contribution. The IRS requires a second HSA be established for a spouse over 55 who wishes to make a catch up contribution regardless of the age of the account holder. The catch up contribution for 2008 is $900 but this goes up $100 per year until 2009 when it caps out at $1,000 per eligible individual on top of the annual HSA max contribution amount. Catch up contributions cannot be made by an employer and must be made by the employee.
Why Would You Want to Contribute into your HSA on top of anything your employer may be contributing? Depending on the amount your employer is funding (if applicable) you may have some financial exposure under your health plan. We will review the health plan in a couple of slides If you know you are going to have medical, dental or vision expenses do you want to pay for those with post tax dollars or pre Federal tax dollars and save 20-40%? A great reason to contribute is to lower your taxable income for Federal tax purposes (Lowers state taxes too in all states except AL, CA, NJ and WI) If applicable your employers money goes into your HSA, your money goes into your HSA. You get Federal tax free interest on the whole thing and you get to deduct any post tax contributions you or your employer have made into your HSA. How To Contribute? If your employer has a Section 125 Plan (and allows it) you can contribute pre Federal tax (entirely tax free in all states except AL, CA, NJ and WI) You can contribute with post tax dollars either by writing a check or simply transferring funds online. If you contribute post tax dollars you can then take an above the line deduction off your Federal 1040 tax return (IRS form 8889 required).
One of the nice things about HSA’s is that the IRS places very few rules/regulations on the employer. The one absolute rule an employer must follow if the employer will be contributing to employee HSA accounts is that the employer contribute the same dollar amount or percentage of HDHP deductible to all “Like employees”. A like employee can be classified as full vs. part time. Union vs. non union. Single vs. family, but that is really it. An employer cannot discriminate based on tenure or age or even management vs. non management. An employer cannot take a fixed dollar amount and tell employees whatever is left after premiums have been paid that they will put into an HSA because in the small group market at least everyone’s premium will be different based on age and ZIP code. If the employer gives the employee the difference between the fixed dollar amount and then the employee has the option of contributing that amount into his or her HSA that is acceptable because it is not an employer contribution.
When an HSA account holder reaches Medicare age they are no longer eligible to open or contribute to an HSA. For some this is 65, others 67 or 69 depending on the age the account holder was born. You cannot contribute to an HSA if you have Medicare A, B or D. Even if you do not take Medicare B and D you automatically get Medicare part A unless you waive it. You can waive Medicare part A, but it may effect your premiums and benefits when you do decide to take Medicare part A. Whether you are 19 or 90 you can continue to use HSA funds tax free for medically necessary expenses. At 65 you can now use your HSA funds for non qualified expenses and you would just pay income taxes on those expenses. Prior to age 65 if you spend HSA funds on non qualified expenses then there is a 10% penalty and taxes applied should you get audited by the IRS just like a non qualified disbursement from a 401K etc.
The list of qualified medically necessary items covered by HSA’s is huge. IRS Publication 502 if you were to print it out is a ¼ of an inch thick! The Cliff Notes version of what you can use HSA funds for is this: 95% of the time if the item or service is medically necessary (as determined by a doctor) then it is HSA qualified. If the expense is not medically necessary or cosmetic it is not a qualified expense. The one major exception to this rule is Lasik. Lasik is considered a qualified expense. In addition to medical, dental and vision expenses, an account holder can also use her or her HSA funds to pay three types of premium: COBRA premiums, Long Term Care or Medicare B and D premiums. For a full list of qualified expenses see IRS Publication 502 Section 213 d (www.irs.gov).
The HSA is just like your checking or savings account, just it is to be used for medical, dental and vision expenses. As such it is important to elect a beneficiary should something happen to you. If you are married and elect your spouse (or a trust in your spouses name) and something happens to you the money goes to your spouse and it is not a taxable event. If you elect someone other than your spouse (or a trust in someone other than your spouses name) then HSA funds are taxed, are no longer HSA funds and can be used as the recipient wishes. If you do not elect a beneficiary then estate taxes apply.
All Sterling accounts are held at Mechanics Bank and are FDIC insured to $250,000 Sterling pays interest on all accounts. Interest is based on account balance. We recommend all account holders keep at least their annual deductible in their HSA before investing any additional funds. This way account holders are not liquidating assets in order to pay a medical bills etc. Sterling was recently cited by Barrons Financial Magazine as one of the best HSA administrators in the country for our investment options. Sterling does not place any limits on where you can invest your HSA funds other than the three things not allowed by the IRS: -Collectibles -Life Insurance -Collateral for Real Estate Another practical limitation to be aware of is that not all financial institutions will accept HSA funds at this time.
Sterling issues and optional Mastercard credit card that is linked to your HSA account. The card is great and works anywhere that provides medically necessary products or services. The card looks at retailer codes and will not work at places like the gas station, Kragen, Home Depot. Macy’s or Nordstroms. The Sterling Mastercard should never be the first card used at the doctors office, hospital or pharmacy. You should always show your health coverage card first. The health plan card is what gives you your discounted rate, tells the service provider to bill the carrier and then the carrier will apply your out of pocket to your deductible and send you an explanation of benefits. You want to pay when you get your EOB. The only exception to this rule is the pharmacy where you give them your health coverage card and they will know your discounted rate then and there. If you get your EOB or you are somewhere where you cannot use your HSA Mastercard then there are several other options to get reimbursed. You can fax or mail your invoice or EOB to Sterling and we will pay the provider. You can pay out of pocket and then send us a receipt and we will reimburse the account holder or your can pay out of pocket and then go online and transfer funds from your HSA to your checking or savings account. All online transactions are free.
What does Sterling do and why are we here? Sterling administers each HSA account. We monitor contributions and will advise you on how much you can contribute. We are one of the only administrators who will review your receipts and EOB’s to make sure they are HSA compliant and that you are getting the correct negotiated discounted rates that you are entitled to. Like your checking or savings account you have free 24/7 access to your account online and can see all contributions, disbursements, interest earned and fees paid. You will also get quarterly account statements and year end tax documents. Sterling is one of the only HSA administrators who will scan and archive all your EOB’s and receipts (at no charge) so you have written documentation to provide the IRS that all HSA disbursements were qualified should you ever get audited. And last but not least Sterling is the only administrator with a money back guarantee on our fees.
Sterling has two fees. These can be employer or employee paid or a combination of both. If the employer pays the set up and Value Plan and employee can always buy up to the Standard Plan if they wish to do so. There is a one time set up fee of $28 for online enrollment or $35 per account if using paper applications. This is not an annual fee. There is also a monthly maintenance fee. Sterling offers two plans. The a la carte Value Plan is $2.50 per month, but there are incremental fees that the account holder would pay for debit card issuance, usage and to have Sterling pay providers etc. If you are healthy and the HSA is a savings account this is the way to go as you would not incur and of these extra fees. However if you know that you or your spouse and kids are in and out of the doctors office, pharmacy etc then you may want to consider our all inclusive Standard Plan for $8.75 per month. An account holder can change their maintenance plan month or month and there is no fee to switch plans. To determine which plan is best for an individual I advise them to do the math based on their medical usage.
Thank you for your time and attention! Any questions?
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