Healthcare Savings Accounts

Information on Healthcare Savings Accounts

June 4, 2014Carleton College

Agenda

• A brief history• IRS guidelines• HSAs and Flex Spending Accounts• Advantages and considerations• Contributing to your HSA• Distributions from your HSA• Banking and Tax Reporting• Your role as HSA account holder

2

History

• The Health Savings Account was created by Medicare

legislation signed into federal law in late 2003

• It’s design is a marriage between an IRA account and

the interest-bearing bank account

– Tax-sheltered savings

– Transaction account

– Earmarked for medical expenses

3

IRS Guidelines to set up a HSA

• Any individual that – Is covered by a qualified HDHP (Blue Plan for Carleton)

• Minimum deductible (adjusted annually)– Single coverage $ 1,300 (2015)– Family coverage $2,600 (2015)

• Maximum out-of-pocket expenses (adjusted annually)*– Single coverage $6,350 (2015)– Family coverage $12,700 (2015)

– Is not covered by other non HDHP health insurance (no dual coverage)

– Is not enrolled in Medicare– Cannot be claimed as a dependent on someone else’s tax

return*Carleton OOP expenses: $2250 single, $3500 EE+1 and Family

4

HSA’s/HRA’s/FSA’s

5

HRA HSA FSA

Who may Contribute Employer Only Employer and/orEmployee

Employee and/or Employer

Maximum Annual Contribution

No Maximum $3,350 (single)$6,650 (family) for 2015

Determined by Employer; Capped at $2,500 starting in 2013

Eligibility Requirements None or Determined by Employer

Must have HSA-qualified health coverage

None or Determined by Employer

Each Employee must open new Bank Account?

No Yes No

Tax Treatment Tax-free Tax-free* Tax-free

Medical Expenses Allowed Health Insurance Premiums + IRC 213(d) as Determined by Employer

IRC 213(d) Expenses w/ No Employer Limitations

IRC 213(d) Expenses;but no Personal Health Insurance

Use for Non-Medical Expenses

None *Taxable event None

Carryover ofUnused Funds to Next Year

Determined by Employer Yes No

Portable after Termination No Yes No

Cross-Compatibility With HSA* or FSA Limited-Purpose or With HRA or HSA*

Blue Plan

• Calendar Year Deductible: $1300 single plan, $2600 ee+1 and family

• Calendar Year Out of Pocket Max: $2250 Single plan, $3500 family contract

• Preventive Health Care: covered 100%• All other services including medications*: 20%

coinsurance AFTER deductible is filled; 25% coinsurance after deductible on non-formulary medications

*Medications on preventative list (RxPlus) have $12 copay for generic, $45 brand name.

6

HSAs and Flex Spending Accounts

• With HSAs you may have a limited use FSA. What does this mean?

• Can use FSA for qualified vision and dental

expenses

*If you have FSA and want to select Blue plan for

2015, must clear out your FSA by 12/31/2014.

7

Advantages & Considerations to HSA

Advantages• Ownership• Tax free• Portable• No “Use it or lose it”• Interest bearing accounts• Use in conjunction with High Deductible Health Plans

(HDHP)Considerations• Money only available when deposited into your

account• Deductible Spending—Non-embedded deductible• HRA funds will not convert to HSA funds

8

Contributing to your HSA

Maximum Contribution Limit (adjusted annually)*• Single coverage $3,350 (2015)• Family coverage $6,600 (2015)

Catch-up contributions (adjusted annually)*– Additional annual contributions allowed for account

owners 55 and older• 2015 = $1,000

Carleton Contributions will be added on a paycheck basis. Any additional money you add in will be deposited on a per paycheck basis.

*Total amount includes both Carleton and Employee contributions

9

Reimbursable Expenses

• Most qualified medical expenses are similar to FSAs

without paying taxes or penalties

Examples include:

– Prescription drugs

– Medical payments that go towards insurance

deductible

– Vision, dental and orthodontics

• A list is provided on the website:

http://www.irs.gov/publications/p502/index.html

10

HSA Distributions

• Distributions are income tax-free if taken for

“qualified medical expenses” incurred by:

– Individual covered by the High Deductible

Health Plan

– Spouse of the individual

– Any IRS defined dependent of the individual

• Spouse and dependents do not need to be

covered by the HDHP

11

HSA Distributions

• HSA’s cannot be used to pay for other health insurance

premiums except for . . .

– COBRA continuation coverage

– Health plan coverage while receiving unemployment

compensation

– Long-term care insurance premiums

– For those individuals receiving Medicare benefits and no

longer contributing to an HSA: reimbursement of Medicare premiums deducted from Social

Security payments and out-of-pocket expenses (Part A, Part B,

Medicare HMOs, new prescription drug coverage)

cannot pay Medi-gap premiums

12

HSA Distributions

• Tax treatment of funds used:

• Additional 20% tax taken for non-medical expenses is avoided if taken after:– Individual becomes disabled– Individual is eligible for Medicare

• State taxes may vary – see your tax advisor

13

Expense Type Age Tax Treatment

Qualified Medical Expense

Any Tax Free

Non-qualified Medical Expense

65 and Over

Ordinary Tax

Non-qualified Medical Expense

Under 65 Ordinary Tax + 20% Penalty

Processing Claims

14

1515

Processing Claims

After the insurance company has reviewed your bill and health plan, you will receive an updated billing statement showing the true cost due.

All discounts have been applied, now is the time to pay your bill.

Banking and HSA

A Bank is the designated HSA Custodian

• Provides the bank account

• Provides HSA information

– Online banking access

– Monthly statements

– Telephone banking

– Debit Card

– Interest/investments potential earnings

16

Tax Reporting

• In January of the following year, the Bank will send each account owner a statement with the fair market value of the HSA.  In addition, we will also send the following tax documents.  This information is reported to the IRS.

– Form 1099-SA – indicating distributions is sent by January 31st

– Form 5498-SA  - indicating contributions, rollover deposits and fair market value for calendar year is sent in May

17

Your role with HSA reporting

• Keep track of your account balance, do not overdraw the account (funds need to be in the account before you make payments)

• Determine which medical expenses are eligible for HSA payments

• Pay and keep proof of the medical expense and payment

• Certain medical expenses may be discounted by your plan—wait to pay those until the discount has been applied

• Remember that all deposits will be recorded as contributions and all withdrawals will be recorded as distributions unless you tell the bank otherwise

18

Saving your HSA Dollars

• Keep yourself as healthy as possible

• Use In-Network doctors/hospitals

• Know your benefits

• Consider generic or mail order prescriptions

• Ask doctors and pharmacists questions

– Most effective treatment

– Cost of treatment

– Alternatives to treatment

19

Questions?

20