1. Health Care Savings Accounts
Benefit Solutions, Inc.
11/27/2018
Health Care Savings Accounts
Presented by
Linda A. Meyerhoffer, CPA
June 6, 2006
Benefit Solutions, Inc.
Linda A. Meyerhoffer, CPA

2. Consumer Driven Health Care Vehicles
High-Deductible Health Insurance
MERP’s – employer & employee funded
HRA’s – ER funded, carry over & spend down features
Health FSA’s
MSA’s
HSA’s

3. Medicare Reform Legislation
Benefit Solutions, Inc.
11/27/2018
Medicare Reform Legislation
Benefit Solutions, Inc.
Most significant change to Medicare since it’s inception
Also helps those not eligible for Medicare by adding HSA’s, effective January 1, 2004
Legislation is hailed as “historic breakthrough” by some, criticized as flawed and limited by others
While new law provides framework for change, details will emerge over time.
Implementation of programs scheduled from 2004 to 2010+
Linda A. Meyerhoffer, CPA

4. HSA Eligibility Requirements
An individual is eligible only if
Covered by a qualifying HDHP
Not covered by another disqualifying coverage
General purpose health FSA or HRA
Impact of new FSA 2 ½ month rule
Pharmacy benefits must be under the HDHP – no card program below the deductible unless 100% paid for by employee
Not eligible to be claimed as a dependent (Code Sec 152)

5. HSA Eligibility Requirements
An individual is eligible only if
Not ENTITLED TO Medicare
Have attained age 65 and -
have applied for and are receiving retirement benefits from Social Security or the Railroad Retirement Board; or
is eligible for monthly retirement benefits from Social Security or the Railroad Retirement Board (but is not receiving such benefits because he or she has not applied for them) and has filed an application for Medicare Part A.9

6. HSA Eligibility Requirements
Other Types of Insurance Permitted
Insurance associated with a specific disease
Hospitalization that pays a fixed amt/day
Vision
Dental
Limited FSA - covering vision, dental and preventive care (Not OTC meds)
Suspended HRA – elect forgoing coverage before coverage period begins
Many EAP’s and Wellness Mgmt Programs

7. HSA Eligibility Requirements
Other Types of Insurance Not Permitted
Va Benefits within 3 months before month of eligibility (preventive excluded)
TRICARE – Health care for active-duty & retired members of uniformed service/family
On-site clinic – if it provides more than nominal medical services and preventive/permissible care.

8. HSA Eligibility Requirements
The following can also establish an HSA and contribute but not under a 125 plan. Therefore any contributions by the employee can not be pre-taxed. Since they are not employees, any ER contribution is not tax deductible either.
More than 2% shareholder of an S Corp
Partners in a Partnership
Self-employed individuals

9. HSA Eligibility Requirements
Eligibility is determined on the 1st of each month

10. HSA Eligibility Requirements
Once a participant becomes ineligible, they can not contribute but they can take distributions

11. HSA Coverage Requirements
Employee must have plan with deductible of $1,050 or more in 2006 ($2,100 for family)
Plan out-of-pocket maximum cannot be greater than $5,250 ($10,500 family)
OK if plan imposes no deductible for preventive care or has higher OOP limit for out-of-network benefits
Deductible and OOP maximums are indexed annually

12. HSA Contribution Requirements
Maximum annual contribution is lesser of deductible or $2,700 ($5,450 family) for 2006 – $225/month
Additional contributions allowed for 55+ : $700 ($1,400 family) increasing to $1,000 ($2,000 family) in 2009+
Roll over contributions not subject to limits (HSA to HSA)
Maximum annual contributions are indexed
Cannot rollover HRA or FSA funds in to HSA

13. ER Contributes to HSA Outside of a 125 plan –
then comparable contributions must be made for all employees with comparable coverage – same $ or % of deductible. Employees don’t have a choice of what to do with the money.
Inside of a 125 plan –
comparability does not apply, only discrimination testing regs. More flexibility on allocating funds, matching, etc.

14. Special Rule for Married Couples
If either spouse has family coverage, then both spouses are treated as having only that family coverage.
If both spouses have family coverage, then the lower annual deductible is used for purposes of determining both eligibility and the combined monthly contribution limit.
Separate Trusts – no joint HSA

15. Tax Treatment Contributions (subject to limits) Earnings
Employer contributions excluded from income and wages
Individual after-tax contributions deductible “above the line”
Contributions can be made until April 15 of the following year
Pre-tax contributions allowed through Section 125 “cafeteria plan” if limited to permitted coverage
Earnings
Trust earnings grow tax-free

16. Tax Treatment Distributions
Distributions for qualified medical expenses are tax-free
Other distributions are permitted but are included in income and subject to 10% penalty tax (no penalty if eligible for Medicare)
Special rules for distributions upon death and divorce
Can be used for self, spouse and dependents even though they may not be eligible for HSA
Self-adjudicating – keep those receipts

17. What Happens at Death
If beneficiary is spouse, transfer to spouse is non-taxable
If non-spouse, the account ceases to be an HSA and the fair market value of the account is given and taxed then
Claims for qualified medical expenses of the decedent can be deducted first if done within a year

18. Tax Treatment
Only approach where contribution, investment earnings and withdrawals for health-related expenses are all free from taxation
Expenses must be incurred after an HSA is established

19. What Expenses Will HSA’s Cover
Most insurance not covered except:
COBRA,
LTC within Code § 213(d)(10) limit
any received while unemployed,
any health insurance when 65 or over except for Medicare Supplement

20. Investing Options No life insurance No co-mingling with other property
No collectibles
Yes - Same investment options of an IRA
Yes Bullion or coins
No borrowing against it

21. Special Considerations
HSA’s offered through 125 plans
Irrevocable election rules do not apply
Changes are prospective
Uniform coverage rule does not apply
No required 12 month coverage
No comparability rules
Include when running Key Man Test (25% rule)
Can still fund LTC through HSA

22. Special Considerations
COBRA does not apply
ERISA does not apply as long as
Establishment of the account is voluntary
Limit the ability for the employee to move the $
Must not impose conditions on utilization
Must not make or influence investment decision
Must not represent that the HSA is established or maintained by the employer
must not receive any payment or compensation in connection with the HSA.
HIPAA not sure if “health plan” yet

23. Employer Options Do nothing Adopt a HDHP (HSA compliant) Adopt an HSA
With or without employer-sponsored HSA
With or without employer contribution to HSA Convert existing CDHC from HRA to HSA
Adopt an HSA
Convert existing Archer MSA to HSA
Communicate changes in conjunction with future reductions in retiree subsidies

24. Employer Options - HDHP
Offer an HSA-compliant HDHP
Employees have option of setting up HSA of their own
No cost to employer for HSA
Offer HDHP and sponsor an HSA for eligible employees
Employees can contribute through employer or set up HSA on their own
Administrative cost for employer unless employees pay cost
Offer HDHP, sponsor HSA and make contributions to the HSA
Employer plus employee contribs cannot exceed limits
Employer pays HSA cost plus administrative cost (unless paid by employees)
Funding HSA’s by employer is not a long-term liability but has a cash cost

25. Employer Options - CDHC
Consumer Driven Health Care – Implement HSA compliant plan, or convert current HRA based plan to an HSA
Disadvantages:
Contraints on insurance protection provided
No employer control over savings account qualified expenses and carryover provisions
Greater risk that employees will not use savings account wisely
Employees less bound to employer
Cash funding required
Cannot roll “unused” HRA funds into HSA

26. Vendor Overview Vendor landscape is morphing Stay alert
Many not certain what final shape will be

27. Questions & Answers ? ? ?