CDHP Concept - what is an HSA

Relationship Management

HSA Education

About HSA Bank (cont.)

©2015 HSA Bank. HSA Bank is a Division of Webster Bank, N.A., Member FDIC.

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Differentiators

• All accounts are penny funded to establish the HSA, which ensures your employee can reimburse themselves for eligible expenses incurred from the date the account opened

• HSA Bank can work with any insurance carrier• Can continue administering HSAs for your employees

if you change insurance carriers


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What is an HSA?• A tax-advantaged savings account that you use to pay for qualified medical

expenses not covered by the HDHP, including deductibles, co-pays, prescriptions, vision and dental care.

• Paired with a qualified HSA-compatible health plan to help eligible individuals pay for qualified medical expenses.

• Unused funds that will roll over year to year. There’s no “use or lose it” penalty.

• Potential to build more savings through investing. You can choose from a variety of HSA self-directed investment options.

• Additional retirement savings. After age 65, funds can be withdrawn for any purpose without penalty .

©2015 HSA Bank. HSA Bank is a Division of Webster Bank, N.A.

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How the HSA works with a High Deductible Health Plan (HDHP)

Use the account to pay for current or future healthcare expenses including deductibles, co-insurance, prescriptions, vision, dental care, and more. As an added benefit, after age 65, HSA funds can be withdrawn for any purpose without penalty.


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Advantages of an HSA

• Funds roll over from year to year• No “use it or lose it” philosophy.

• Tax benefits on contributions, earnings and distributions• Contributions are either pre-tax (via paycheck) or tax-deductible.

• Portability• Funds follow the employee if they leave the company or change health

insurance.• Tax-free withdrawals for Qualified Medical Expenses even if qualifying coverage

ends.

• Long-term investment opportunities • Not FDIC insured

• Control over healthcare dollars


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Tax Treatments of an HSA• Contributions

• Employee payroll contributions are deducted from employee’s federal taxable income.

• Employees in the state of CA, AL and NJ are subject to state taxes. • Post tax contributions are tax deductible when employee files taxes. • All contributions (employer and employee pre-tax) are reported on the

employee’s W-2 in box 12 with the code W.

• Earnings• HSAs grow in the same tax-deferred manner as IRAs.

• Distributions• Withdrawals for qualified medical expenses are tax-free. • Before age 65, funds withdrawn for non qualified medical expenses are

penalized at 20% and considered taxable income. • After age 65, funds may be withdrawn for any reason without penalty but

considered taxable income.


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Who is eligible for an HSA?

Individuals who are covered by an HSA-compatible health plan are eligible if they are NOT:

Covered by any other non HSA-compatible health plan

Traditional health plans, FSA, HRA, Tricare and/or VA benefits

Claimed as a dependent on another person’s tax return

Excluding spouses per Internal Revenue Code

Enrolled in Medicare


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HSA-Compatible Health Plans• The employee generally cannot have any other health coverage that is not an HDHP.

However, the employee can still be eligible even if the spouse has non-HDHP coverage provided the employee is not covered by that plan.

• The employee can have additional insurance that provides benefits only for the following items. • Liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities

related to ownership or use of property• A specific disease or illness• A fixed amount per day (or other period) of hospitalization• Accidents• Disability• Dental care• Vision care• Long-term care• Prescription drug plans (if the plan does not provide benefits until the minimum

annual deductible of the HDHP has been met)


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Non HSA-Compatible Health Plans• Medicare: Mere eligibility for Medicare does not make an employee ineligible to

contribution to an HSA. Rather, the term “entitled to benefits under” Medicare means both eligibility and enrollment in Medicare. An employee who is enrolled in any part of Medicare is not an eligible individual.

• General Purpose FSA or HRA: HSAs and general purpose FSAs and HRAs are not allowed in the same household. However, the following arrangements do work with an HSA. • Limited-purpose FSA or HRA• Suspended HRA• Post-deductible FSA or HRA• Retirement HRA

• FSA Grace Period: Coverage during a grace period by a general purpose FSA is allowed if the balance in the FSA plan is zero at the end of it’s prior year. Otherwise eligibility for the HSA will begin the first day following the end of the grace period. • Example: John’s FSA grace period ends on 3/15 in which he carries over a

balance from the previous plan year. John is not eligible for the HSA until 4/1.


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Non HSA-Compatible Health Plans

• VA Benefits: An employee who is eligible to receive VA medical benefits but who has not actually received such benefits during the preceding three months is eligible for the HSA. An employee is not eligible for the HSA if they have received medical benefits from the VA at any time during the previous three months.

• TRICARE: Coverage options under TRICARE do not meet the minimum annual deductible requirements for an HDHP. Thus, an employee covered under TRICARE is not an eligible individual and may not contribution to an HSA.

• Eligibility of the employee’s spouse and dependents will not affect the employee’s eligibility for the HSA.


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HSA Open Date

• First of the month eligibility • HSAs are opened based upon the effective date of the HSA-compatible health

plan. • Example: John’s HSA-compatible health plan is effective 1/1. John’s HSA will be

open on 1/1.

• Mid-month eligibility• If an employee’s HSA-compatible health plan effective date is any date other

than the 1st of the month, the IRS stipulates that the HSA would open on the 1st day of the following month. (IRS notice 2004-50 Q&A 11)

• Example: Alex’s HSA-compatible health plan is effective 6/15. Alex’s HSA would be open on 7/1.


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2016 Single Family

Minimum Deductible $1,300 $2,600

Maximum Out-of-Pocket $6,550 $13,100

Maximum Contribution Single Family

2016 $3,350 $6,750

Catch-up Contribution(Age 55+) $1,000

Intended to cover serious illness or injury

Can pay for eligible medical expenses not covered the health plan

HDHP

HSA

HSA Contribution Limits


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Catch Up Contributions

• Catch up contributions• Employees age 55+ are eligible for an additional $1,000 catch up contribution. • Spouses age 55+ can make an additional $1,000 catch-up contribution

annually if they meet all HSA eligibility requirements. Spouses must open their own HSA to make the catch up contribution.

• Contributions need not be prorated based on when in the year a person turns 55.


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Easy ways to contribute to the HSA

There are several ways employees may contribute to (fund) their HSA. In addition, other people can contribute to the employee’s HSA - like a spouse, family member, or employer.

• Payroll Deduction: HSA Bank will facilitate recurring pre-tax payroll deductions as part of a Section 125 Cafeteria Plan.• Online Transfers: Through HSA Bank’s Member Website, employees can transfer funds from an external bank account (i.e., checking or savings accounts) to the HSA.• Personal Check or Money Order: HSA Bank will accept a personal check with a completed Contribution Form mailed to HSA Bank directly at PO Box 939, Sheboygan, WI 53082.• HSA & MSA Transfer; IRA Rollover*: A once-per-lifetime transfer can also be made from an IRA; however, transfers are subject to the annual maximum contribution limit.

*Before initiating a transfer or rollover of any kind, employees are encouraged to consult aqualified tax advisor to understand any conditions or risks that may apply.


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Easy Employer Enrollment Options

• Enrollment via our electronic file will allow the employer to send their enrollment via our standard file format which will be provided to the employer during the implementation process. This file will be PGP-encrypted and sent securely to our FTP/SFTP server.

• Electronic Enrollment allows HSA Bank to open an account based on an electronic file and the employer or third-party demonstrating the employee’s intent to open an HSA.

• Individual Online Enrollment• Paper Application


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Convenient Employer Contribution

• Contribution file sent to the secure FTP/SFTP server with funds pulled by HSA Bank or pushed to a clearing account at HSA Bank.

• Online through the Employer Administration Site to initiate a pull of funds from a designated external account for the purposes of contributing to the employees’ accounts; this option would allow the employer to avoid creating an additional file.

• ACH Direct: Much like a direct deposit, you can use your current payroll provider to make contributions directly to your employees’ HSAs.

• Paper Checks to HSA Bank©2015 HSA Bank. HSA Bank is a Division of Webster Bank, N.A., Member FDIC.

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HSA Contribution Prorating Provisions• Last Month Rule

• If HSA-compatible coverage is effective after January 1st in a given year, employees can contribute the annual IRS maximum as long as the HSA-compatible plan is effective on or before December 1st and fulfills the testing period. (IRS Publication 969)

• If employee does not maintain eligibility during testing period, excess contributions are subject to a 6% penalty and considered taxable income.

• Testing Period• Qualifying coverage must continue through December 31st of the following

year from when HSA-compatible plan was effective.

• Example• Shelly’s HSA-compatible plan is effective 12/1/14. She can fund the annual IRS

maximum as long as she remains HSA eligible through 12/31/15.


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Seamless Transferring of Accounts

• Establish New HSAs: An HSA Bank Business Relations specialist will help you select the enrollment and contribution options that best meets your needs.

• Complete Transfer Forms: Once the HSAs have been established, you can communicate the transfer to your employees and distribute the transfer forms provided by HSA Bank.


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• HSA funds can help cover some medical expenses not covered by the health insurance.• Medical expenses can be paid with an HSA Visa® Health Benefits Debit Card (provided when opening account) or by writing an HSA check (optional when opening account, fee applies).• Eligible medical expenses can be paid out-of-pocket and then reimbursed from the HSA – tax free.

Paying for Healthcare expenses


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HSA Distributions

• Account establishment date• Employees can expense eligible medical expenses incurred after HSA is

established. IRS recognizes an HSA as established upon the account opening and initial funding. (IRS Notice 2004-50 Q&A39 and IRS Notice 2008-59 Q&A 38)

• HSA Bank funds every new account with $0.01 to establish the HSA on the day it is opened. (Note: The transaction description will read “HSA Bank deposit to establish account”)

• Eligible medical expense auditing• Unlike FSAs, HSA custodians are not required to determine whether HSA

distributions are used exclusively for eligible medical expenses.• Employees determine if expenses are qualified and should maintain records of

expenses.• Employees are responsible for reporting non qualified HSA distributions when

filing taxes.


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Debit Card Capabilities

• Present the debit card for direct payment of medical expenses to any provider who accepts VISA® and provides medical products and services


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Check Writing

• Optional HSA Checks– No minimum balance requirements to order checks– Unlimited check writing at no charge– Or, transfer funds to an external account to use personal

checks to pay for eligible medical expenses– See the HSA Bank Fee and Interest Schedule for check

fee amount


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Opportunity to Invest HSA Funds

• No minimum HSA cash balance required to invest in self-directed investment options (for most Partners)

• TD Ameritrade– Access to bonds, stocks and thousands of mutual funds

• DEVENIR– A pre-selected group of no-load mutual funds covering a

range of fund families and asset classes


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IRS-Qualified Medical Expenses*

• Employees can use their HSA to pay for a wide range of eligible medical expenses (as defined by the IRS) for themselves, their spouse or tax dependents. Here are just some examples:


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• Doctor and hospital visits• Medical equipment• Dental care, braces,

dentures• Vision care, glasses, contacts• Prescription medications

(and over-the-counter medication when prescribed)

*A list of Eligible Medical Expenses can be found in IRS Publication 502, http://www.irs.gov/pub/irs-pdf/p502.pdf. As described in IRS publication 969, http://www.irs.gov/pub/irs-pdf/p969.pdf, over-the-counter medications (when prescribed by a doctor) are considered Eligible Medical Expenses for HSA purposes.

• Premiums for long-term care insurance

• Premiums for COBRA• Premiums for coverage while

receiving unemployment compensation

• Premiums for individuals over age 65

http://www.irs.gov/pub/irs-pdf/p502.pdf

http://www.irs.gov/pub/irs-pdf/p969.pdf

CDHP Concept - what is an HSA

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