1. Ball State University Brandi McGlothin Payroll & Employee Benefits H EALTH S AVINGS A CCOUNTS 101

2. P RESENTATION D ISCLAIMER  The intent of this presentation is only for educational/informational purposes and should not be construed as offering legal or tax advice  Individuals that consider enrolling in a qualified High Deductible Health Plan, or opening a Health Savings Account (HSA), should familiarize themselves with the rules of the insurance and the account  Management of an HSA is the sole responsibility of the accountholder with regard to eligibility, contributions, distributions, and tax reporting

3. W HAT IS A H EALTH S AVINGS A CCOUNT (HSA)?  Special account owned by you to pay and save for current and future qualified medical expenses on a tax-free basis  Used in conjunction with a qualified “High Deductible Health Plan” (HDHP)  Qualified HDHP’s do not cover 1 st dollar medical expenses except for preventive care  All covered benefits, including Rx drugs, must apply to the HDHP deductible  Goal is to reduce money spent on health care by placing more responsibility on you (consumer-driven)

4. W HO IS E LIGIBLE FOR AN HSA?  Any individual that:  Is covered by a qualified HDHP  Is not covered by any other non-qualified HDHP  Specific disease or illness insurance, accident, disability, dental, vision and LTC is allowable  Is not enrolled in Medicare and/or drawing Social Security benefits  Is not claimed as a dependent on another person’s tax return  Spouses can establish their own HSAs, if eligible

5. W HO IS E LIGIBLE FOR AN HSA?  Is not covered by Tricare (until Tricare offers an HSA qualified HDHP)  Has not received any VA health benefits in the last 3 months  Does not have an FSA that is not specified as “limited-purpose” or “post-deductible”  Does not have an HRA (Health Reimbursement Arrangement) that is not suspended or used solely for retiree health expenses

6. HSA C ONTRIBUTION R ULES  Contributions can be made by you or by others on your behalf  Your contributions can be made on an after- tax basis and taken as an “above-the-line” deduction on your tax return, or  You can make pre-tax contributions through payroll deductions  You can deposit your funds with the trustee/custodian of your choice

7. HSA C ONTRIBUTION RULES  Ball State offers two trustee/custodian choices for pre-tax payroll direct deposit:  ASB/Mellon – New Jersey  HSABank – Sheboygan, WI New! – Effective July 1, 2011

8. HSA C ONTRIBUTION R ULES  You own the contributions within the HSA as soon as the funds are deposited  Your employer has no more control over your HSA than they do over your personal checking account  You can make a once-in-a-lifetime transfer from a traditional or ROTH IRA to your HSA  The distribution must be made directly by the IRA trustee to the HSA trustee  The distribution is not included in your income and not deductible  The distribution amount is subject to the contribution limits applicable for the year of the transfer

9. HSA C ONTRIBUTION R ULES  For 2011, the maximum amount that can be contributed to an HSA is:  $3,050 (self-only coverage)  $6,150 (family coverage)  Individuals who are age 55 or older can make “catch-up” contributions of $1,000 each year  A full year’s contribution (plus the “catch-up” if applicable) may be made to your HSA when you first become eligible  However, if you make the full contribution and do not remain eligible during the “testing period”, you will be subject to taxes and penalties

10. N EW THIS YEAR !!! EMPLOYER HSA CONTRIBUTIONS  Effective January 1, 2012, Ball State will begin “seeding,” or contributing to employee HSAs  Seeding will done on a calendar year basis due to tax concerns  Employees must open an account with HSABank in order to begin receiving the seed  Ball State will pay the monthly maintenance fee for the HSABank accounts  Ball State is currently looking at an alternative contribution “vehicle” for employees in the HDHP who do not meet HSA eligibility requirements

11. E MPLOYER HSA CONTRIBUTIONS HSA Qualified Plan Bi-Weekly Contribution 26-Pays Bi-Weekly Contribution 18-Pays Monthly Contribution 12-Pays Monthly Contribution 10-Pays Maximum 2012 CY University Contribution Individual Coverage Jan. 1 – June 30 $29.46 $38.30 (10 Pays) $63.83$76.60 $574.50 Individual Coverage July 1 – Dec. 31 $14.73 $23.93 (8 Pays) $31.92$38.30 Employee & Child(ren)/Family Coverage Jan. 1 – June 30 $73.84 $96.00 (10 Pays) $160$192 $1440 Employee & Child(ren)/Family Coverage July 1 – Dec. 31 $36.92 $60.00 (8 Pays) $80$96

12. HSA D ISTRIBUTION R ULES  Distribution is tax-free if taken for “qualified medical expenses” (QMEs)  There is no definitive list of expenses; a partial list is provided in IRS Publication 502 (available at www.irs.gov)www.irs.gov  Expenses must be incurred on or after your HSA is established  If your HDHP coverage is effective on the 1 st day of the month, you can establish your HSA as early as the 1 st day of the same month  If your HDHP coverage is effective any day other than the 1 st day of the month, you cannot establish your HSA until the 1 st day of the following month

13. HSA D ISTRIBUTION R ULES  Funds may be used for medical expenses of your spouse or any of your IRS dependents, even if these individuals are not covered by the HDHP*  You can still use the funds for QMEs, even if you no longer have HDHP coverage  Funds roll over each year; there is no “use it or lose it” like with FSAs  There is no time limit on using the funds *Funds cannot be used for same-sex domestic partners

14. HSA D ISTRIBUTION R ULES  You may reimburse prior years’ expenses as long as they were incurred on or after the HSA was established  If you enroll in Medicare you can use your account to pay Medicare* premiums, deductibles and co-pays  If you are not 65, you cannot use your HSA funds to cover Medicare premiums for your spouse  If you use your account to pay for non QMEs, the amount is included in your income (taxed) and is subject to a 20% penalty *You cannot use your HSA to purchase Medigap

15. HSA D ISTRIBUTION R ULES  Once you turn 65, you can use your account to pay for items other than QMEs…like a cruise or new car! It will be taxed, but the 20% penalty will not apply*  Mistaken HSA distributions can be returned  Mistaken distributions must be repaid by April 15 th of the year following the year in which the mistake was or should have been discovered – the mistake has to be clearly a mistake, not just an emergency *This also applies if you become disabled

16. H SA PAPERWORK : HOW TO HANDLE IT  The key to success is ORGANIZATION!  An HSA is a tax benefit, so if faced with an IRS audit, you’ll have to prove that you used the funds for QMEs  Keeping good records will also help make sure you’re always paying the right amount  We recommend that you keep everything in one location  Shoe box, file folder, desk drawer, under your mattress, etc.  Receipts, medical bills and EOBs (Explanation of Benefits) should be kept along with your tax records for the year (don’t send them in with your tax return!)

17. W HAT S HOULD I D O N EXT ?  Research, research, and research…make an informed decision

18. Q UESTIONS ? Please contact the Payroll and Employee Benefits Office (PEB) at 285-8461 www.bsu.edu/payroll Email: peb@bsu.edu peb@bsu.edu