Considering an HDHP With an HSA

1
Considering an HDHP With an HSA?
2
Basic HSA Plan Concept
Part 1 High Deductible Health Plan
Intended to cover serious illness or injury
HSA Concept
Part 2 Health Savings Account Made by
Employer, Employee, and/or other party
Can pay for eligible expenses not covered by the
health plan
Contributions do not need to be prorated based
on the date coverage began, as long as qualifying
coverage is maintained through December 31st of
the following year.
3
Why choose an HSA-Compatible health plan?

• Premium Savings
• According to employers surveyed by HSA Bank, over
  59 reported saving an average of 10 39
• Lower future renewal costs
• Premium increases in HSA plans averaged under 3
  while HMO, PPO and Indemnity plans hovered over
  7. (The Maine View)
• Ability to offer health insurance to employees
• 27 of small group market did not previously
  offer insurance coverage to employees
  (ehealthinsurance)
• Employee opportunity to control healthcare
  spending
• Decreased rise of health care costs through lower
  utilization

4
Advantages of an HSA

• For an Employer
• Tax benefits
• Employee-owned funds promote increased motivation
  for involvement in healthcare decisions resulting
  in
• Healthcare dollars being spent more wisely
• Employees shopping around for healthcare based
  on quality of care and price
• HSAs allow matching contribution options by
  employers and employees through a cafeteria plan

5
Advantages of an HSA

• For an Employee
• Funds roll over year to year
• No need to use it or lose it
• Tax benefits on the contributions, earnings, and
  distributions
• Potential for increased take-home pay
• Long-term investment opportunity

6
Additional HSA Funding Options

• IRA funds may be rolled to an HSA on a one-time
  basis
• Subject to the annual HSA contribution maximum
• Only traditional IRAs qualify at this time
• Individuals must remain covered by a qualifying
  HDHP until the last day of the 12th month
  following the month of rollover to avoid tax
  penalties
• HRA and Health FSA may be rolled to an HSA
• Employers must amend their plan documents to
  allow this
• Rollovers must be made directly from the employer
  to the custodian/trustee
• The IRS can help you determine if this is a
  possibility

Always consult a qualified tax advisor, and/or
the IRS for details and reporting requirements in
regard to taxation, fund rollovers and other
stipulations.
7
Designing Your HSA Offering
8
HSAs, HRAs, FSAs
9
How HSAs FSAs Can Work Together

• Limited Purpose FSA (can have with an HSA)
• Pay for dental and vision expenses without having
  to use HSA funds
• Health FSA (cannot normally have at the same time
  as an HSA)
• Extension provides 2.5 months beyond the end of
  the plan year to use FSA funds
• Recent legislation allows employees to contribute
  to HSAs during the extension if their FSA balance
  is zero during that time or the total FSA balance
  is transferred to an HSA.

Example of when HSA contributions can be made if
an individual still has a Health FSA. This
assumes that the FSA plan is not renewed after
the extension.
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
0 bal. Jan. 1-March 15
Jan. Dec. Plan March 15th extension
5 bal. Feb. 6th, 0 bal. Feb 7th
May April Plan July 15 extension
0 bal. May 1-July 15
32 bal. May 2nd
Plan Year
Eligible to contribute to HSA
NOT Eligible to contribute to HSA
10
How HSAs HRAs Can Work Together

• Three types of HRAs you can have with an HSA
• Post deductible HRApays for out-of-pocket
  expenses after the HDHP deductible has been met
• Retirement HRADesignated for medical expenses
  after retirement
• Suspended HRACannot make contributions or take
  distributions from the HRA while contributing to
  the HSA

11
Design Makes a Difference

• Business Relations Can Provide Customized HSA
  Design Ideas
• Things to consider
• How many employees will be offered an
  HSA-compatible health plan?
• How many health plan options are being offered?
• What are your objectives for offering the HSA
  plan?
• What is your goal for enrolled?

12
Plan Design Stats

• A 2006 survey of nearly 200 agents and employers
  regarding plan design indicates that
• More than 83 of employers contribute to their
  employees HSAs
• Of those employers, 78 contributed at least 20
  of the deductible in the 1st year
• Of those employers, 71 contributed at least 20
  of the deductible beyond the 1st year
• Nearly 72 of employers pay the set-up fees
• Nearly 25 of employers pay the monthly fees

13
Employee Communication
14
Benefits of Communication Education

• HSA plan selection--Based on an HSA Bank survey,
  when an employer spent at least 90 minutes
  explaining the HSA concept, the number of
  employees that selected an HSA plan grew by more
  than 21
• Financial gain
• Immediate communication/education leads to
  employee HDHP acceptance, which will decrease
  premium costs (supply and demand)
• Long-term Employees are in control of healthcare
  spending and thus utilization decreases
• Consumers paid an average of 348 less in 2005
  for HSA-eligible health insurance plans compared
  to 2004 (ehealthinsurance July 27,2005)
• Overcoming the stigma of an HDHP
• Pre-enrollment and ongoing communication/education
  enables employees to see beyond a higher
  deductible to the benefits an HSA plan has to
  offer

15
Employee Communication Tips

• Begin education early
• Combine multiple forms of communication printed,
  web, multi-media, in-person
• Emphasize the benefits of choice and empowerment
• HSAs require employees to approach their
  healthcare in a new way, which puts them in
  control of their healthcare dollars
• Employees need to
• Ask about price
• Ask if procedures are necessary
• Discuss with their physician if alternatives
  exist
• Compare current plan design with HSA-compatible
  plan design
• Illustrate the tax benefits and long-term savings
  potential
• Involve spouses in the communication process

16
Employer Communication Kit
HSA Bank offers a comprehensive communication
kit, which guides employers through the stages of
their HSA program and provides important
educational materials
1. Implementation Employer Welcome Kit
3. Enrollment Enrollment Instructions Outline of
what employees will receive Sample Emails Sample
Employee Welcome Kit
2. Pre-enrollment Fact Sheet Brochure Web Tools
Including Calculators PowerPoint and Macromedia
flash presentations
4. Ongoing Monthly Employee Communications
17
Are HSAs changing spending behavior?

• Increased Consumerism in Healthcare
• (Research results from McKinsey Co., June
  2005)Consumer-directed health plan holders were
  more value conscious and attentive to wellness
  prevention and therefore
• 50 more likely to ask about costs
• 30 more likely to get an annual exam
• 25 more likely to engage in healthy behaviors
• 20 more likely to comply with treatment regimens
• 300 more likely to choose less expensive options

18
Account Trends

• Based on HSA Banks customer base of over 186,000
  accounts as of December 31, 2007
• 96.5 of all open accounts rolled over funds from
  2007 to 2008
• On average, accounts rolled 2163 into 2008
  
• Average contribution per month 214
• Average distribution per month 173
• Average monthly savings 41
• Nearly 18 of accountholders saved all
  contributed funds and rolled over an average
  balance of 4013 into 2008.
• More than a third of accountholders saved at
  least 50 of their 2007 contributions.

19
Tax Benefits
20
Tax Treatment and Advantages for an Employer

• Treated as employer-provided coverage for medical
  expenses under an accident or health plan
• Excludable from gross income
• Not subject to withholding for income tax
• Not subject to other employment taxes
• (i.e., Social Security and Medicare taxes (FICA),
  federal unemployment tax (FUTA), or the Railroad
  Retirement Tax Act)

21
Tax Treatment and Advantages for
Employees/Accountholders

• Contributions are either pre-tax through a
  cafeteria plan or tax-deductible
• Earnings
• HSAs grow in the same tax-deferred manner as IRAs
• Interest and investment income are also tax-free
  or tax deferred
• Distributions
• Withdrawals for qualified medical expenses are
  always tax-free. After age 65, funds may be
  withdrawn for any reason without penalty, subject
  to regular income tax.

22
How to Get Started
23
Enrollment Options

• Group Online Enrollment (generally most efficient
  method regardless of size)
• Employer initiates enrollment via our group
  set-up site
• Choose type of approval
• Choose how fees will be paid
• Employee
• Completes information on customized enrollment
  site
• Electronic Enrollment Originated From Paper
• (typically used by larger groups when group
  online enrollment is not chosen)
• Employee completes paper application
• Employer creates electronic data files and images
  of the paper applications
• Individual Online Enrollment (used when the
  employee pays the fees)
• Employee completes information on individual
  online enrollment site
• Paper Applications
• Employee fills out paper application and sends to
  HSA Bank

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How are Fees collected

• If Employers are paying
• The employer can pay fees up front for the
  remainder of calendar or plan year
• Employer can be invoiced
• Per employee pricing available on a monthly or
  quarterly basis
• If Employees/Accountholders are paying
• Monthly fees will be deducted from the account

25
Coordinating HSA Contributions
Since both employees and employers can make
contributions, it is important to coordinate in
order to avoid excess contributions and tax
penalties. The maximum can be contributed through
a combination of sources or a single source as
long as the annual limit is not exceeded.
HSA ContributionLimits Up to the IRS determined
maximums 2008 2,900 single 5,800
family 2008 3,000 single 5,950 family
EMPLOYERCONTRIBUTIONS

INDIVIDUAL / EMPLOYEECONTRIBUTIONS
IRA Transfers
If an individual has HSA accounts with different
administrators, all contributions count toward
the annual contribution maximum.
26
Employer Contributions

• Online (ACH Pull)
• Convenient in-house system in Employer Login area
• Provided list of all employees tied to Federal ID
  
• Columns after each name for ER, EE, EX allows for
  simple designation of employer, employee and
  employee pre-tax contribution amounts
• ACH Direct
• Employer sends ACH direct to employees accounts
• Utilize discretionary data field in ACH file to
  code contribution sources
• Company ACH or Wire Transfer File
• Company sends one ACH or Wire Transfer File
• The transaction file dictates how the money is
  distributed to each account
• Submit a Check
• With Contribution Form

27
Employers Comparable Contributions

• Comparability testing period based on a calendar
  year and determined on a monthly basis. Testing
  based on contributions to employees covered under
  the employers HDHP. There is a 35 penalty for
  failing to meet comparable contribution
  requirements.
• Note The employer must make comparable
  contributions for all employees with HDHPs who
  open HSAs under the employers plan. Contact the
  IRS to determine the requirements for employees
  who have an HSA-Compatible health plan but have
  not opened an HSA by December 31st.

28
Exceptions to the Comparability Rule

• Exceptions
• Due to new legislation, employers may contribute
  more for employees who are non-highly-compensated
  employees (non-HCEs) as long as contributions
  compare within employment categories. Non-HCEs
  are defined under Internal Revenue Code 414 (q)
• Comparability rules do not apply to employer
  contributions made through a Section 125
  Cafeteria Plan.
• Employers may make matching contributions through
  a Section 125 Cafeteria Plan (Non-Discrimination
  rules apply)

29
Comparable Contributions Example
Employer may contribute up to the maximum amount
as determined by the IRS.
For 2008 2900 for individual coverage and
5800 for family coverage For 2009 3000 for
individual and 5950 for family. Apply the same
concept for part-time employees within each
category
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Employee Contributions

• Online Contributions (through Internet Banking)
• Recurring or one-time, as needed
• Check
• With Contribution Form tear-off (on each
  statement or downloaded from website)
• With Deposit Ticket

31
Savings Account Option

• Interest bearing bank account
• Accounts are opened as an FDIC-insured bank
  account through Webster Bank, N.A.
• Current interest rate and annual percentage yield
  information is available on our website,
  www.hsabank.com or by calling 800-357-6246.
• Interest rates are subject to change. Fees may
  reduce earnings.

32
Self-Directed Investment Option

• TD Ameritrade Corporate Services
• Access to stocks, bonds and over 11,000 mutual
  funds
• Trades are made online or over the phone
• Transfer funds from your HSA to your investment
  account
• Online through Internet Banking
• By calling the Client Assistance Center
• HSA Bank does not charge a fee however, trading
  fees may apply

33
Mutual Fund Selection

• Devenir Investment Advisors
• Selection Options
• Employer can choose to offer our standard
  selection of historically top-performing mutual
  funds
• For an additional fee, employers can choose to
  select mutual funds similar to their 401(k)
  offering
• Trades are completed online through HSA Banks
  Internet Banking system
• HSA Bank does not charge a fee. An annual fee of
  24 is charged by the Mutual Fund Selection
  vendor however, no trading fees apply

34
Methods of Distribution

• Debit Card from Visa
• POS with signature
• (no transaction fee)
• ATM with PIN (2 fee)
• POS with PIN (2 fee)
• Checks, 7.95 for 50 10 deposit tickets
  
• (no transaction fee)
• Withdrawal Forms (10 fee)

35
Communication Reporting

• Accountholder
• Account statements
• IRS reporting
• Email confirmation of account opening and ongoing
  activity
• Employer
• Email confirmation of deposits
• Employer newsletter
• Email updates on consumer-driven health care and
  HSA account features
• Aggregate reporting available upon request

36
Calculation Tools

• Is an HSA Right for Me
• Compares a traditional health plan with an
  HSA-compatible plan to determine potential
  savings http//www.hsabank.com/calculators/decisio
  n_tool.aspx
• Future Value Calculator
• Calculates tax savings on contributions and
  tax-deferred growth as well as the future value
  of your Health Savings Account http//www.hsabank.
  com/calculators/future_value.aspx

37
www.hsabank.com

• HSA Bank has created a website to serve the
  specific needs of and provide relevant
  information to
• Prospective accountholders
• Calculation Tools
• HSA Information
• Enrollment
• Accountholders
• Internet Banking
• Self Service (forms, check/debit card
• orders, secure contact form)
• Employers
• Employer Administration Area
• Group Online Enrollment
• Group Online Contributions
• Communication Kit

38
Employer Login Area

• Online access for employers to
• View and manage their list of employees with HSAs
• Upload contribution data and census files
• Sign-up for updates
• Sign-up for Group Online Enrollment
• Make online contributions to employee HSAs
• (separate sign-up required)
• Download the communication kit

39
Customization Options

• Application materials
• Brochure Inserts
• Welcome letter
• Custom toll-free number

40
Expertise Commitment

• Industry leadership
• Have over 500 million in FDIC insured deposits
  and over 65 million additional dollars in
  non-FDIC insured investment accounts
• Administer more than 210,000 accounts in all 50
  states

41
Experience

• Ten years in the HSA-industry
• Began with Medical Savings Accounts in 1997
• Continued with HSAs in 2004
• Maintain relationships with over 300 health
  plans/TPAs
• Work with more than 15,000 employer groups

42
Service Support

• Business Relations Department Exclusively
  assists our employer, agent, broker,
  broker/dealer, health plan TPA clients. (866)
  357-5232 Monday-Friday 7 a.m. 7 p.m. CST
• Regional Vice President Assistant Vice
  President Provide local assistance for our
  employer, agent, broker, broker/dealer, health
  plan TPA clients.
• Client Assistance CenterProvides dedicated
  customer service to individual and prospective
  accountholders.
• Spanish Language SupportOur Client Assistance
  Center and Business Relations teams provide
  Spanish language support for employer
  relationships, accountholders and prospective
  accountholders.
• ExperienceOur Business Relations Coordinators
  and Client Assistance Center receive the most
  comprehensive and up-to-date HSA training in the
  industry. Our representatives have a strong
  customer service background and many have worked
  in finance, insurance, and benefits
  administration.

43
Thank you for considering
zixbypass
Investment products are not FDIC insured, are
not a deposit or other obligation of or
guaranteed by the bank, and are subject to
investment risks including possible loss of the
principal amount invested.