A Primer on Health Savings Accounts for Consumers

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A Primer on Health Savings Accounts for Consumers

• Presented by
• National Association of Health Underwriters

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Health Savings Accounts (HSAs)

• Newly available as of January 1, 2004
• Available to almost everyone if they have a
  qualified high deductible health insurance plan
• Under an HSA, the health plan is paired with a
  savings account to cover eligible medical
  expenses not covered by the insurance policy
• Individuals who are covered under another health
  plan that is not a qualified high deductible plan
  arent eligible
• Specified disease coverage, hospital indemnity,
  and auto insurance do not count as other coverage
• Vision, dental, accident, and disability also do
  not count as other coverage
• If you are covered by your spouses plan and it
  is not a qualified high-deductible plan, you are
  not eligible, even if you have your own qualified
  high-deductible plan

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More on eligibility

• Individuals entitled to Medicare are not eligible
  to contribute to Health Savings Accounts
• However, they can still spend money they have
  previously accumulated in their Health Savings
  Account
• Individuals that can be claimed as a dependent on
  another persons tax return arent eligible
• This means that dependent children should be
  covered if possible under a family HSA and
  high-deductible policy.
• If they can still be claimed as dependents on a
  parents tax return, they cant have their own
  HSA.

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Qualified High-Deductible Health Plans

• The annual deductible on your insurance policy
  must be at least 1,000 if you have individual
  coverage or 2,000 if you have coverage on your
  family
• The deductible, plus your share of covered
  expenses, cant be greater than 5,000 if you
  have individual coverage and 10,000 if you have
  family coverage
• If your plan is a PPO (Preferred Provider
  Organization), your maximum share of expenses,
  including your deductible, coinsurance, and
  co-pays, if any, is calculated based on the use
  of in-network providers, not for services you
  obtain outside the plan network
• Preventive care services may be covered before
  you meet your deductible, but this is not required

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More on Qualified High Deductible Health Plans

• Under a qualified plan, coverage for doctors
  visits should be subject to the annual deductible
  like other expenses, not with a co-pay at the
  time of service
• Prescription drugs should also be covered like
  other expenses, subject to the annual deductible,
  not with co-pays under a drug card that pays
  benefits before the deductible is satisfied
• A qualified high-deductible plan can be obtained
  through an employer plan or can be purchased by
  an individual on their own

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NewTreasury Department Guidance from March 30,
2004

• Some questions have arisen as to what could be
  considered preventive care
• The new guidance from Treasury creates a
  beginning definition
• Includes routine health care, including
• Prenatal care
• Smoking cessation
• Obesity weight-loss programs
• A variety of screening services
• These services are not REQUIRED to be included in
  plans but MAY be included without being subject
  to the overall deductible.

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New Guidance from March 30, 2004

• Establishes transition relief for calendar year
  2004 for eligible individuals who establish an
  HSA on or before April 15, 2005
• Gives people who have a qualified high-deductible
  plan but who have had trouble finding a trustee
  to manage the funds in a health savings account
  more time to find a trustee
• Allows a person who was covered by a qualified
  high-deductible plan during 2004 to to use their
  HSA for expenses incurred during 2004 while they
  were covered by the plan as long as they open up
  an HSA account on or before April 15, 2005.

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New Guidance from March 30, 2004

• Transition relief is provided for 2004 and 2005
  for health plans that would meet the definition
  of qualified high-deductible plan except for a
  prescription drug rider or separate drug plan
  that pays benefits for prescription drugs before
  the deductible is satisfied.
• Transition relief is temporary to allow plans
  to make modifications from their current form to
  qualify under the regulations.

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New! Guidance from May 11, 2004

• A person is not allowed to have an FSA and/or an
  HRA along with an HSA if all three cover Section
  213d expenses
• The HRA or FSA would be allowed along with an HSA
  if used only for dental, vision, and preventive
  care expenses
• An HRA also could be offered with an HSA if
  reimbursements were allowed only at retirement

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New! Guidance May 11, 2004

• An HRA or FSA could be used with an FSA if they
  only reimbursed expenses after the deductible was
  met on the high-deductible health plan
• An HRA could also be used with an HSA if the
  individual elects to suspend reimbursements for a
  period of time. Claims incurred during that time
  could not be submitted later for reimbursement,
  however, contributions by the employer could
  still be made to the HRA.

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New!Guidance from June 21, 2004

• Transition relief will be provided for states who
  have mandates in place that require benefits to
  be paid (other than for preventive care) before
  the health plan deductible is satisfied
• Relief will be provided until January 1, 2006, to
  allow states to make changes in their laws to
  allow HSAs to be sold without being subject to
  these mandates

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Contributions to an HSA

• Contributions must be made in cash
• Contributions can equal the amount of the
  insurance policy deductible, between 1,000 to a
  maximum of 2,600 for an individual or 5,150 for
  a family.
• Individuals 55 years of age or older can make
  extra contributions to their accounts.
• The amount allowed in 2004 for individuals
  between ages 55 and 65 is 500.
• Contributions by an eligible individual or a
  family member of the eligible individual are tax
  deductible by the eligible individual on an
  above the line basis
• This means a person doesnt have to itemize
  deductions on their tax return in order to deduct
  their HSA contribution.

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Contributions to HSAs

• Both employers and employees can contribute to
  the account portion of the plan
• Contributions by an employer are not taxable
  income to the employee
• Individuals own their own HSAs, not employers who
  may or may not make contributions, or custodians
  or administrators of the account
• This means that individual owners of the account,
  not employers, are responsible for ensuring that
  contributions do not exceed the annual maximum
  allowed amount
• Contributions made by an employer are not
  deductible by the individual.

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Contributions to an HSA

• Contributions from all sources are counted
  equally to calculate the contribution maximum
• Funds in an HSA can be invested, and interest and
  investment earnings on contributions are not
  taxable
• Contributions may be made at any time of year in
  one or more payments, at the convenience of the
  individual or employer.
• The deadline for contributions is April 15 of the
  year following the year for which the
  contribution is made

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Using the Money in Your HSA

• Balances remaining in an HSA at the end of a year
  roll over to the next year
• A debit or credit card or a check can be used, if
  available through your trustee, to spend funds in
  your HSA.
• If you are no longer an eligible individual, for
  example, you turn age 65 or no longer have a
  qualified high deductible health plan, the funds
  remaining in your HSA can still be used, but only
  for qualified medical expenses
• If you are over age 65, you can use the funds for
  non-medical expenses, but the funds used will be
  considered taxable income
• A person under age 65 can also use the funds for
  non-medical expenses, but the funds will be
  considered taxable income AND there will be an
  additional 10 tax

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Using the Money in Your HSA

• When an HSA account holder dies, if the
  beneficiary listed on the account is his
  surviving spouse, the spouse will be the new
  owner of the HSA.
• If the beneficiary is other than the surviving
  spouse, the amount of funds in the HSA are
  taxable income to the beneficiary, except for
  medical expenses of the account holder paid
  within one year of death.
• The taxable amount will be reduced by the amount
  of estate tax paid due to inclusion of the HSA
  into the deceased individuals estate

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What are Qualified Expenses?

• Prescription drugs
• Doctors visits, lab, x-ray, and other diagnostic
  and treatment services
• Qualified long-term care services and long-term
  care insurance
• COBRA premiums, and health insurance for those on
  unemployment compensation
• Medicare Part A and B premiums, Medicare HMO or
  Medicare Advantage premiums (but not Medigap)
• Retiree health expenses for individuals age 65
  and older (but retiree health plans would not
  have to meet the 1,000/2,000 minimum deductible
  requirements)
• Ensuring that expenses paid from the account are
  qualified medical expenses is the responsibility
  of the account holder.
• The account holder must keep adequate records
  concerning the use of the HSA funds.

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Concerns About Prescription Drug Expenses

• Some individuals and employers are concerned
  about a high-deductible and whether prescription
  drug expenses will be affordable
• Many people are accustomed to a prescription drug
  card with a co-pay for prescription drugs
• Employees with chronic illness who take several
  medications may find that due to the actual cost
  of their medications, they meet their deductible
  very quickly and that the coinsurance of the high
  deductible plan is lower than the copays with the
  drug card.
• Example John and Mary and their son Steve take
  a total of eight medications each month. They
  currently have a health plan with a prescription
  drug card. Six of their eight medications are on
  their preferred drug list and have a co-pay of
  20 per month. The other two medications are
  available in generic and have a co-pay of 10 per
  month.

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Actual Drug Costs

• Here is an example of the actual cost of the
  Smith familys drugs
• Mary Steve
• Singulair 95.59 Singulair 95.59
• Flonase 66.99 Allegra 68.99
• Zocor 78.77 Advair 158.99
• Atenolol 15.19 Albuterol 19.89
• Total 256.54 Total 343.46
• Family Monthly Total Drug Cost 600.00
• Total Copays Currently 140.00
• Copays do not count toward the policy
  out-of-pocket maximum with this drug card

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Here is another familyThe Jones Family

• Jack Janice
• Singulair 95.59 Singulair 95.59
• Advair 158.99 Triam 9.99
• Allegra 68.99 Synthroid 15.69
• Albuterol 19.89 Prevacid 134.99
• Flonase 66.99 Pulmacort 120.00
• Triam 9.99 Astelin 67.59
• Zocor 78.77 Inderol 29.00
• Atenolol 15.19 Sulindac 30.00
• Total 514.40 Total 502.85
• Family Monthly Total Drug Cost 1,027.25
• Total Copays Currently 260.00

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Plan Design Considerations

• These families arent unusual, they are dealing
  with such common ailments as allergies, asthma,
  high-blood pressure, and high-cholesterol.
• As you can see, some of these average families
  have high drug expenses.
• They may feel the security of a drug card is
  important
• Depending on the actual situation of a particular
  family and how many different family members are
  incurring claims, families may do as well or
  better without a drug card, allowing their drug
  expenses to go towards their health plan
  deductible

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Establishing an HSA

• Many insurance companies are either planning or
  already selling a packaged HSA product that will
  provide both the high-deductible health plan and
  management of the funds deposited into an HSA
• Its not necessary to buy a packaged product to
  qualify
• Any qualifying high deductible plan can be used
  with a Health Savings Account they dont need
  to be provided by the same insurer
• In fact a person who already has an existing high
  deductible plan that meets the requirements of
  the law could open an HSA account at a bank or
  other institution
• A qualified plan can be either a group or an
  individual plan

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Establishing an HSA

• To find out how you can establish an HSA, contact
  your health insurance agent or broker
• To find an agent in your area, go to
  www.nahu.org, or http//www.nahu.org/consumer/HSAG
  uide.htm