Health Savings Accounts (HSA) by Paige McNeal

agenda What is a Health Savings Account? HSA eligibility requirements Plan eligibility Employee eligibility HSA Reporting HSA Eligible Expenses HSAs and beneficiary Implementing HDHP + HSA mid plan year 5/21/2019 EBC for Training Purposes Only

What is a Health Savings Account? An HSA is a trust created exclusively for the purpose of paying eligible medical expenses on a tax-favored basis. The HSA was created via the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 Trustees are generally banks, insurance companies or any entity already authorized by the IRS to administer an IRA HSAs are individual contracts owned by the account holder and are portable

HSA: Plan Eligibility The IRS provides the plan design rules that will qualify a HDHP for an HSA benefit component Criteria for 2019: For calendar year 2019, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co- payments, and other amounts, but not premiums) do not exceed $6,750 for self-only coverage or $13,500 for family coverage. (Rev. Proc. 2018-30)

HSA: Plan Eligibility Can’t have separate prescription drug coverage that ignores deductible requirement Can have preventative services provided

HSA: plan Eligibility You may have a HDHP without an HSA, but you can’t have an HSA without enrolling in a HDHP

Hsa: individual eligibility Easy Part Hard Part You MUST be enrolled in a HDHP in order to contribute to an HSA Some of the other benefits you may have will make you ineligible to contribute to your HSA

Hsa: individual eligibility Can’t contribute to an HSA if : You are claimed as a dependent on another person’s tax return You are covered by any other health plan other than a HDHP You are enrolled in Medicare You receive 1st dollar benefits from TriCare You have access to a “Full-Use” Medical Flexible Spending Account You have access to a “Full-Use” Health Reimbursement Arrangement

Hsa: individual eligibility Since the inception of HSAs the IRS has provided us with ways to redesign our current benefits to maintain HSA funding eligibility

New “Medical” FSA Options Original Option “Full-Use” Med FSA Co-pays Deductibles Health out-of-pocket expenses Over-the-counter items New Allowed Option “Limited-Use” Med FSA Vision & Dental Only 5/21/2019 For Training Purposes Only - EBC Work Product

New “HRA” Options Original Option “Full-Use” HRA Co-pays Deductibles Health out-of-pocket expenses Over-the-counter items New Allowed Options “Limited-Use” HRA Vision & Dental “Premium Only” HRA No reimbursement of out-of-pocket expenses “Suspended” HRA Deny access on annual basis 5/21/2019 For Training Purposes Only - EBC Work Product

Your ARE ELIGIBLE! HOW CAN You CONTRIBUTE? Pre Tax Contributions After Tax Contributions A contribution may be made via an employer-sponsored 125 Cafeteria Plan All employer and pre-tax employee contributions will be reported on Form W2, box 12, the amount will be coded with a “w” After tax contributions provided, outside 125 Cafeteria Plan, via employer, employee, or anyone else, will be reported on Form 8889, as part of your federal income tax return

HSA Reporting You will receive a Form 1099 SA from your HSA trustee so you may refer to it when you complete your personal income tax This form reports total distributions from the account This form should arrive by Jan 31st You will receive Form 5498 SA from your HSA trustee This form reports total contributions This form may not arrive until after May 1st (because you can make contributions to account until April) The trustee sends a copy of this form to the IRS You may use other items such as receipts and statement to prepare your taxes before the deadline

HSA Reporting Complete and submit Form 8889 as part of your federal income tax return This Form is where you list your contributions; except contributions made via the 125 Cafeteria Plan. You will note total distributions and make adjustments to taxable income and penalties for non eligible expenses.

Annual CONTRIBUTION LIMITS 2019 Combined Employee and Employer Limit Single Coverage in HDHP = $3,500 Family Coverage in HDHP = $7.000 If between the ages of 55 and 65 you may contribute an additional $1,000 If you lose HSA funding eligibility mid-year the contribution will need to be pro-rated

HSA - Exceeding Contribution Limits If you exceed your contribution limit for the tax year the overage is included in your gross income and an excise tax of 6% is charged on the overage. 5/21/2019

HSA Eligible Expenses Out of Pocket Expenses (IRC 213(d) Co-pays Deductibles Prescription drugs and medicines Durable medical equipment Long Term Care premiums HSA holders can pay for health insurance premiums for his/her spouse and qualified dependents if the account holder is receiving healthcare continuation through COBRA or is receiving unemployment compensation through a federal or state program.

HSA Eligible Expenses If Age 65 and Older Medicare Part B and D

HSA Ineligible Expenses Health insurance premiums Medicare Supplemental or Medigap policy premiums Expenses for a non-spouse or non-dependent Definition of dependent child under HSA is not the same as definition of dependent for health insurance coverage IRC 152

Distributions From HSA Distributions are tax-free when used for eligible medical expenses Individual’s responsibility to report properly Distributions not used for medical expenses are included in gross income and an additional 20% tax penalty is imposed If you are 65 or older, disabled or die no penalty is assessed. 5/21/2019

What Happens If You Die? If account owner dies and the HSA passes to a non-dependent it ceased to be an HSA as of the date of death The beneficiary must include HSA value as gross income as of the date of the account owner’s death The benefactor may use the HAS to pay final bills for the decedent for up to one year after death. Those amounts would be tax-free and would not be included as gross income to anyone. 5/21/2019

HSA-125 Flex Plan Coordination Plan Year issues: If your insurance plan year is not the same as your 125 Flex Plan Year you may have an eligibility issue when you first implement Why: Remember if you have flexed in the Full-Use Medical FSA you are ineligible to contribute to an HSA 5/21/2019 For Training Purposes Only - EBC Work Product

HSA-125 Flex Plan Coordination (continued) Employees that switch to the HDHP and HSA mid-plan year and flexed in the “Full-Use” Med FSA must wait until the plan year ends before they may fund their HSA If the plan provides for a grace period that also applies If participant’s Med FSA account balance is zero by the end of the 12 month plan year he/she may fund HSA 5/21/2019 For Training Purposes Only - EBC Work Product

HSAs Offered Through 125 Flex Plans The following Flex Plan rules DON’T apply to HSA contributions made through your Flexible Benefits Plan Use-it-or-lose it Uniform Coverage Rule Change in status requirements for changing elections or stopping for stopping deductions Can change or stop anytime, but only prospectively 5/21/2019 For Training Purposes Only - EBC Work Product

Questions Educators Benefit Consultants, LLC (EBC) 3125 Airport Parkway NE Cambridge, MN 55008 www.ebcsolutions.com paige@ebcsolutions.com Phone: 763-552-6053 Fax: 763-552-6055