Health Savings Accounts Advanced Guidance

1
Health Savings AccountsAdvanced Guidance

• By Janet Trautwein
• Vice-President of Government Affairs
• National Association of Health Underwriters

2
What well cover

• This is not a Basic Course
• Advanced Eligibility Issues
• More on Qualifying Health Plans
• More on Employer Sponsored Plans
• More on Preventive Care
• Contributions
• Distributions
• Other Important Issues

3
Eligibility When Covered by Other Government
Plans

• If an individual is eligible for Medicare but not
  enrolled in either Part A or B, they can still
  contribute to an HSA, including catch-up
  contributions
• If a person is VA eligible but has not received
  benefits in the preceding 3 months they may
  contribute to an HSA
• A person covered by TRICARE is not eligible to
  contribute to an HSA (Tricare does not meet the
  deductible requirements of HSA law)

4
Eligibility Other Coverage

• Specified disease coverage is not considered
  other coverage
• Coverage that pays a daily hospital benefit is
  not considered other coverage
• Employee Assistance Programs generally are not
  considered other coverage
• Disease Management Programs generally are not
  considered other coverage
• Wellness programs are generally not considered
  other coverage
• Flexible spending accounts ARE considered other
  coverage
• Health Reimbursement Arrangements ARE considered
  other coverage

5
Health Plans

• If health insurance coverage begins mid-month,
  HSA contributions will be allowed the first of
  the following month.
• Health insurance coverage is considered family
  coverage if it is more than self-only coverage
  (so spouse only and children only are considered
  family coverage)
• State high-risk pool coverage can qualify as a
  high-deductible health plan if it otherwise meets
  the requirements of the law

6
Health Plans

• A qualified plan can impose reasonable limits on
  specific benefits
• Amounts in excess of these amounts do not have to
  count towards the out of pocket maximum
• If limits are not reasonable, amounts in excess
  of the limit will be required to count towards
  the out of pocket maximum
• Usual and Customary limitations are considered
  reasonable
• If a plan has no stated out of pocket maximum but
  due to plan design creates a maximum out of
  pocket amount, it will still qualify as a HDHP

7
Health Plans

• HDHP coverage may provide deductible credit for
  mid-year plan takeovers
• A HDHP may give credit for deductible amounts
  satisfied by an individual who changes to family
  coverage mid-year against the family deductible
  maximum
• Contributions to the HSA will be at the
  individual level for the number of months of
  individual coverage and at the family level for
  the remaining months

8
Health Plans

• Some questions have arisen as to what could be
  considered preventive care
• Guidance from the Treasury Department issued
  March 30, 2004 creates a beginning definition
• Includes routine health care, including
• Prenatal care
• Smoking cessation, including prescription drugs
• Obesity weight-loss programs, including
  prescription drugs
• A variety of screening services (also includes
  treatment of conditions discovered during the
  screening (Guidance July-2004)

9
Health Plans - Preventive Care

• Preventive care or screening that also includes
  the treatment of a related condition during the
  procedure may still be considered preventive care
  
• Drugs may be considered preventive care if a
  person has developed risk factors for a disease
  that hasnt yet manifested itself
• Also, drugs taken by a person who has fully
  recovered by an illness to prevent reoccurrence,
  such as ACE inhibitors in someone who had a
  stroke, may also be considered preventive care
• Drugs used for preventive services, such as
  weight loss or tobacco cessation program drugs,
  may also be considered preventive care

10
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
• To allow health plans time to change the way they
  cover prescription drugs now, guidance issued by
  the Treasury department March 30, 2004 allows
  plans that otherwise meet the definition of a
  qualified high deductible health plan except they
  include a prescription drug card or other
  separate plan that provides benefits for
  prescription drugs until January 1, 2006 to get
  their new systems in place.
• A qualified high-deductible plan can be obtained
  through an employer plan or can be purchased by
  an individual on their own

11
Health Plans

• Guidance from the Treasury Department on March
  30, 2004 allows 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
• This temporary rule 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 qualified high-deductible health plan as long
  as they open up an HSA account on or before April
  15, 2005.

12
Health Plans

• Some states have benefits mandates that require
  benefits to be paid before the health plan
  deductible is satisfied
• These state mandates may prevent HSA plans from
  being sold in those states
• The Treasury Department will give states until
  January 1, 2006 to make changes in their laws to
  allow HSAs to be sold without being subject to
  these mandates

13
Employer Sponsored Plans The Relationship of
HRAs, HSAs, and FSAs

• Employers may already be offering other types of
  accounts like Health Reimbursement Arrangement
  Arrangements (HRAs) or Flexible Spending Accounts
  (FSAs)
• The rules for Health Savings Accounts (HSAs) are
  different than the rules for HRAs and FSAs
• A person is not allowed to have an FSA and/or an
  HRA along with an HSA if all three cover the same
  eligible expenses
• But if the HRA or FSA were used only for dental,
  vision and preventive care expenses, an
  individual would still be eligible to participate
  in an HSA

14
Employer Sponsored Plans The Relationship of
HRAs, HSAs, and FSAs

• An individual could also still be eligible for an
  HSA if their employer provided an HRA where
  reimbursements were allowed only at retirement
• An individual would also still be eligible for an
  HSA if the HRA or FSA offered through their
  employer had a deductible at least as high as the
  minimum deductible required for a qualifying
  high-deductible health plan under HSA
  regulations.
• 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.

15
Contributions

• Contribution limits for family coverage where
  there is an embedded individual deductible and an
  umbrella family deductible is the least of the
  following
• (1) 5,150 for family coverage (in 2004)
• (2) the umbrella deductible
• (3) the embedded deductible multiplied by the
  actual number of eligible family members covered
  by the plan

16
Contribution limits Where One Family Member is
Ineligible

• The maximum contribution is the lower of
• The lowest HDHP family deductible in the family
• The statutory maximum contribution 5,150
• Example
• In 2004, a couple has family coverage with a
  5,000 deductible. The husband is eligible but
  the wife is also covered through her employer
  with a 200 deductible, so she is not eligible to
  contribute to the HSA. The husband may
  contribute 5,000 to an HSA

17
Contribution limits Where One Family Member is
Ineligible

• Example 2 Same as previous example except the
  wife is eligible since her coverage through her
  employer has a 2,000 deductible. They can still
  contribute 5,000, the amount of the husbands
  family policy deductible, but the contribution is
  divided equally between husband and wife.

18
Contribution limits Where One Family Member is
Ineligible

• Example 3 Same family, but this time the wife
  has family coverage with a 3,000 deductible
  instead of self-only coverage with a 2,000
  deductible. Both husband an wife are eligible.
  Both are treated as having family coverage.
  Contributions are based on the lowest family high
  deductible health plan. The contribution limit
  for the couple is 3,000 divided equally between
  husband and wife.

19
Contribution limits Where One Family Member is
Ineligible

• Example 4 Same couple again, but instead wife
  has family coverage with a 500 deductible.
  Neither husband or wife is eligible to contribute
  to an HSA because both are covered by a policy
  that is not a high deductible health plan.

20
Contribution limits Where One Family Member is
Ineligible

• Example 5 Same couple but instead wife is
  enrolled in Medicare. Wife is not eligible.
  Husband may contribute 5,000 to an HSA.
• Example 6 Single parent has one dependent
  child, and he covers her through a family policy
  with a 5,000 deductible. The dependent also has
  self-only coverage with a 200 deductible.
  Parent may contribute 5,000 and the child may
  not contribute. However, out of pocket expenses
  incurred by the child may be paid out of HSA
  funds.

21
Contributions

• If an HRA with a deductible has a deductible
  lower than the HDHP deductible, the maximum
  contribution will be the lower of the two
  deductibles.
• Example, an employer offers an HSA with a 2,500
  deductible, and an HRA with a 2,000 deductible.
  Once a person meets 2,000 in expenses, the HRA
  will pay until the 2,500 deductible is met.

22
Comparable Contributions

• An employer can only use incentive contributions
  if offered through a cafeteria plan
• An employer may pro-rate the amount of their
  comparable contribution for full time employees
  who only work part of the year
• An employer is not required to make contributions
  to an HSA where the HDHP is not offered through
  the employer.
• If they do this, they must do the same for all
  eligible individuals whether they are covered
  under the employer plan or an outside plan.

23
Comparable Contributions

• A employer may offer an HSA mid year, but this is
  not an allowable reason to change an FSA election
• Account maintenance fees are not considered a
  contribution
• Account maintenance fees may be withdrawn from
  the account but do not increase the annual
  allowable contribution level
• The employer may not recoup fees deposited to an
  HSA account

24
Distributions

• A person may defer to later taxable years
  distributions from an HSA as long as the expenses
  were incurred after the HSA was established.
• Long-term care insurance premiums may be paid
  from an HSA even if the HSA is offered under a
  Cafeteria Plan

25
Rollovers

• A beneficiary may make only one rollover
  contribution to an HSA during a 1 year period.
• Any amount paid or distributed from an HSA must
  be rolled over within 60 days after receipt.
• The limits on rollovers do not apply if the
  rollovers are made trustee to trustee.

26
Other Issues

• If a beneficiary can show convincing evidence
  that a distribution was a mistake, they have
  until April 15 following the tax year in question
  to return the distribution to the account with no
  penalty.
• A trustee does not have to allow beneficiaries to
  return mistaken distributions to an HSA., even
  though this is allowed by the regulations

27
Other Issues

• The following requirements for health FSAs do not
  apply to HSAs
• No rollover
• Maximum reimbursement must be available all year
• Mandatory twelve month period of coverage
• Change in status rules

28
Other Issues

• Husbands and wives may not have a joint HSA
• Eligible individuals may have more than one HSA
• Permissible investments are those approved for
  IRAs, however the HSA trustee may restrict
  investments to certain types of permissible
  investments
• HSA funds cant be co-mingled with other funds

29
Other Issues Employer Responsibility

• Employers are only responsible for determining
  the following with respect to an employees
  eligibility and contribution limit
• Whether the employee is covered under a HDHP (and
  the deductible) or low deductible health plan or
  plans (including health FSAs and HRAs) sponsored
  by that employer
• The employees age for catch-up contributions
• Making comparable contributions

30
Other Issues

• A deduction for HSA contributions is an
  adjustment to gross income and is reportable on
  Form 1040.
• It is not attributable to a self-employed
  individuals trade or business so is not taken as
  a deduction on Schedule C.
• It is also not taken into account when
  determining net earnings from self-employment.
• An employers contribution to an HSA does not
  impact eligibility for the Earned Income Credit

31
Other Issues

• Changes in deductibles due to cost of living
  adjustments can be made at renewal.
• Contribution limits are calculated monthly, based
  on the deductible in effect for each individual
  month.