1、All About HSAs,U.S. Treasury Department Washington, DCAugust 18, 2004,Revised August 18, 2004,2,HSA Overview,A Health Savings Account (HSA) is a special account owned by an individual where contributions to the account are to pay for current and future medical expenses HSAs are used in conjunction w
2、ith a “High Deductible Health Plan” (HDHP) Insurance that does not cover first dollar medical expenses (except for preventive care) Can be an HMO, PPO or indemnity plan, as long as it meets the requirements,Revised August 18, 2004,3,HSA Overview,HSAs were created in Medicare legislation signed into
3、law by President Bush on December 8, 2003 HSAs modeled after Archer MSAs,Revised August 18, 2004,4,Who Is Eligible for HSAs?,Any individual that: Is covered by an HDHP Is not covered by other health insurance Is not enrolled in Medicare Cant be claimed as a dependent on someone elses tax return Chil
4、dren cannot establish their own HSAs No income limits on who may contribute to an HSA No requirement of having earned income to contribute to an HSA,Revised August 18, 2004,5,Who Is Eligible for HSAs?,What other health coverage is allowed for you to still be eligible for an HSA? specific disease or
5、illness insurance and accident, disability, dental care, vision care and long-term care insurance Employee Assistance Programs, disease management program or wellness program These programs must not provide significant benefits in the nature of medical care or treatment Drug discount cards Eligibili
6、ty for VA Benefits Unless you have actually received VA health benefits in the last 3 months,Revised August 18, 2004,6,Who Is Eligible for HSAs?,What “1st dollar” medical benefits make someone ineligible for an HSA? Medicare Tricare Coverage Flexible Spending Arrangements Health Reimbursement Arrang
7、ementsThere are permitted HSA/HRA/FSA combinations,Revised August 18, 2004,7,Who Is Eligible for HSAs?,Permitted HSA/HRA/FSA combinations: “Limited purpose” FSAs and HRAs that restrict reimbursements to certain permitted benefits such as vision, dental, or preventive care benefits “Post-deductible”
8、FSAs or HRAs that only provide reimbursement after the minimum annual deductible has been satisfied under the HDHP “Retirement” HRAs that only provide reimbursement after an employee retires “Suspended” HRAs where the employee has elected to forgo health reimbursements for the coverage period,Revise
9、d August 18, 2004,8,What Is a “High Deductible Health Plan” (HDHP)?,Health insurance plan with minimum deductible of: $1,000 (self-only coverage) $2,000 (family coverage) These amounts are indexed for inflation Annual out-of-pocket (including deductibles and co-pays) cannot exceed: $5,000 (self-only
10、 coverage) $10,000 (family coverage) These amounts are indexed for inflation,Revised August 18, 2004,9,What is a “High Deductible Health Plan” (HDHP)?,Reasonable benefit designs not counted toward the out of pocket maximum include: Lifetime limits on benefits Limits to usual, customary and reasonabl
11、e (UCR) amounts Limits on specific benefits Maximum number of days or visits covered Maximum dollar reimbursements Pre-certification requirements,Revised August 18, 2004,10,What is a “High Deductible Health Plan” (HDHP)?,HDHPs can have: first dollar coverage (no deductible) for preventive care highe
12、r out-of-pocket (copays & coinsurance) for non-network services,Revised August 18, 2004,11,What is a “High Deductible Health Plan” (HDHP)?,Conflicts with state benefit mandates State mandated first dollar coverage will result in plan losing status as HDHP NJ requires first dollar coverage of any tre
13、atment of lead poisoning Transition relief for state mandates in place on January 1, 2004 Plans containing such mandates will not lose status as HDHP prior to January 1, 2006 After that date, plan will lose status as HDHP if such mandates remain in place,Revised August 18, 2004,12,What is a “High De
14、ductible Health Plan” (HDHP)?,Prescription Drugs HDHPs must apply costs of prescription drugs to the annual deductible or the individual may not contribute to an HSA Transition relief provided until January 1, 2006 if the individual is covered by a prescription drug benefit provided by a separate pl
15、an or rider from the HDHP,Revised August 18, 2004,13,What is a “High Deductible Health Plan” (HDHP)?,Preventive Care Safe harbor list of preventive care that HDHP can provide as first-dollar coverage before minimum deductible is satisfied: Periodic health evaluations (e.g., annual physicals) Screeni
16、ng services (e.g., mammograms) Routine pre-natal and well-child care Child and adult immunizations Tobacco cessation programs Obesity weight loss programs Can apply co-pays to preventive care services,Revised August 18, 2004,14,What is a “High Deductible Health Plan” (HDHP)?,Preventive Care Preventi
17、ve care generally does not include any service or benefit intended to treat an existing illness, injury or condition Certain drugs and medications can be considered preventive care. Drugs taken by a person who has developed risk factors for a disease that has not yet manifested itself or to prevent
18、reoccurrence of a disease Example: Cholesterol-lowering medication for those with high cholesterol,Revised August 18, 2004,15,HSA Contribution Rules,Contribution to HSA can be made by the employer or the individual, or both If made by the employer, it is not taxable to the employee (excluded from in
19、come and wages) If made by the individual, it is an “above-the-line” deduction Can be made by others on behalf of individual and deducted by the individual,Revised August 18, 2004,16,HSA Contribution Rules,Maximum amount that can be contributed (and deducted) to an HSA from all sources lesser of: Am
20、ount of HDHP Deductible or Maximum specified in law (indexed annually) $2,600 (self-only coverage) - 2004 $5,150 (family coverage) 2004,Revised August 18, 2004,17,HSA Contribution Rules,Revised August 18, 2004,18,HSA Contribution Rules,Special deduction rules for family coverage where there is a sep
21、arate individual embedded deductible amount for each family member of at least the minimum contribution limit for family coverage ($2,000 in 2004) and an overall umbrella deductible amount for the whole family. Maximum contribution is the lower of: Maximum contribution limit for family coverage ($5,
22、150 in 2004) The umbrella deductible amount The embedded individual deductible multiplied by the number of family members covered by the plan If the embedded individual deductible is less than the minimum contribution limit for family coverage, then the insurance is not a qualifying HDHP,Revised Aug
23、ust 18, 2004,19,HSA Contribution Rules,For individuals age 55 and older, additional “catch-up” contributions to HSA allowed 2004 - $500 2005 - $600 2006 - $700 2007 - $800 2008 - $900 2009 and after - $1,000 Contributions must stop once an individual is enrolled in Medicare,Revised August 18, 2004,2
24、0,HSA Contribution Rules,The total amount of contributions to an HSA are based on the number of months that the individual is covered by an HDHP as of the first day of the month. 3 months of HDHP coverage with an annual high deductible amount of $1,200 will mean that the maximum contribution will be
25、 3/12ths of $1,200 or $300. Also applies to “catch-up” contributions Age 55 for 6 months in 2004 will mean a $250 catch-up contribution permitted,Revised August 18, 2004,21,HSA Contribution Rules,Contributions to the HSA in excess of the contribution limits must be withdrawn by the individual or be
26、subject to an excise tax A pro-rata portion of earnings must be withdrawn also Pay income tax on the withdrawn amount, but no 10% penalty If the HSA maximum contribution limit was not reached for the year, any other withdrawal for the year (that is not for qualified medical expenses) will not be con
27、sidered “excess HSA contributions” and that withdrawal will be subject to both income tax and the 10% penalty,Revised August 18, 2004,22,HSA Contribution Rules,Employee contributions to an HSA Can be made by a salary reduction arrangement through a cafeteria plan (125 plan) Elections to make contrib
28、utions through a cafeteria plan can change on a month-by-month basis (unlike salary reduction contributions to an FSA) Remember that contributions to the HSA through a cafeteria plan are “pre-tax” and not subject to individual or employment taxes. Employer can automatically make cafeteria plan contr
29、ibutions on individuals behalf unless the individual affirmatively elects not to have such contributions made (“negative elections”),Revised August 18, 2004,23,HSA Contribution Rules,Employer contributions to an HSA Are always excluded from employees income (pre-tax) Must be “comparable” for all emp
30、loyees participating in the HSA If not comparable, there will be an excise tax equal to 35% of the amount the employer contributed to employees HSAs The self-employed, partners and S-Corporation shareholders are generally not considered employees and cannot receive an employer contribution They can
31、make deductible contributions to the HSA on their own,Revised August 18, 2004,24,HSA Contribution Rules,Employer contributions to an HSA Comparable contributions are contributions to all HSAs of an employer: which are the same amount or which are the same percentage of the annual deductible May coun
32、t only employees who are “eligible individuals” covered by the employer under the HDHP and who have the “same category of coverage” (i.e., self-only or family) No other classifications of employees are permitted Part-time employees can be tested separately “Part-time” means customarily employed fewe
33、r than 30 hours per week,Revised August 18, 2004,25,HSA Contribution Rules,Employer contributions to an HSA Employer matching contributions to the HSA through a cafeteria plan are not subject to the comparability rules But cafeteria plan nondiscrimination rules apply contributions cannot be greater
34、for higher paid employees than they are for lower paid employees contributions that favor lower paid employees are OK Employer contributions to an HSA based on an employees participation in health assessments, disease management program or wellness program do not have to satisfy the comparability ru
35、les if the employee may elect to receive that payment in currently taxable cash rather than having a nontaxable contribution to the HSA Cafeteria plan nondiscrimination rules also apply,Revised August 18, 2004,26,HSA Contribution Rules,Violations of the Comparability Rules Extra contributions to an
36、HSA on account of employees who meet a specified age or qualify for the catch-up contributions Contributions based on length of service,Revised August 18, 2004,27,HSA Distributions,Distribution is tax-free if taken for “qualified medical expenses” Now includes over-the-counter drugs Qualified medica
37、l expense must have occurred after the HSA was established For expenses in 2004, the expense must have occurred after the individual participated in an HDHP as long as the HSA is established by April 15, 2005,Revised August 18, 2004,28,HSA Distributions,Tax-free distributions can be taken for qualif
38、ied medical expenses of: person covered by the high deductible spouse of the individual (even if not covered by the HDHP) any dependent of the individual (even if not covered by the HDHP),Revised August 18, 2004,29,HSA Distributions,If distribution is not used for qualified medical expenses Amount o
39、f distribution is included in income and 10% additional tax except when taken after: Individual dies or becomes disabled Individual is age 65,Revised August 18, 2004,30,HSA Distributions,“Qualified medical expenses” do not include other health insurance (including premiums for dental or vision care)
40、 Exceptions: COBRA continuation coverage Any health plan coverage while receiving unemployment compensation For individuals enrolled in Medicare: Medicare premiums and out-of-pocket expenses (Part A, Part B, Medicare HMOs, new prescription drug coverage) employee share of premiums for employer-based
41、 coverage Cannot pay Medigap premiums Qualified long-term care insurance premiums,Revised August 18, 2004,31,HSA Distributions,Qualified Long Term Care Insurance Premiums Premiums can be paid, tax free, through an HSA, even if amounts were contributed to the HSA though a cafeteria plan FSAs cannot b
42、e used to pay for LTC insurance premiums Tax-free reimbursement cannot exceed the annually adjusted “eligible long-term care premiums” in the Internal Revenue Code Amount of eligible LTC premium is based on age,Revised August 18, 2004,32,HSA Distributions,Should the HSA account holder keep receipts?
43、 YES! May need to prove to IRS that distributions from HSA were for medical expenses May be required by insurance company to prove that the deductible was met under the HDHP Not all medical expenses paid out of the HSA have to be charged against the deductible (e.g. dental care, vision care),Revised
44、 August 18, 2004,33,HSA Distributions,Distributions from HSA can be used to reimburse prior years expenses as long as they were incurred after the HSA was established No time limit on when distribution must occur However, individual must keep records sufficient to prove that: the expenses were incur
45、red, they were not paid for or reimbursed by another source or taken as an itemized deduction,Revised August 18, 2004,34,HSA Distributions,Mistaken distributions from an HSA can be returned to the HSA Clear and convincing evidence must be shown that the distribution was a mistake of fact Must be rep
46、aid by April 15 of the year following the year in which the individual knew or should have known the distribution was a mistake,Revised August 18, 2004,35,Estate Treatment of HSAs,If married, the spouse inheriting the HSA is treated as the owner If not married: The account will no longer be treated
47、as an HSA upon the death of the individual The account will become taxable to the recipient of it (including the estate of the individual) Taxable amount will be reduced by any qualified medical expenses incurred by the deceased individual before death and paid by the recipient of the HSA The taxabl
48、e amount will also be reduced by the amount of estate tax paid due to inclusion of the HSA into the deceased individuals estate,Revised August 18, 2004,36,HSA Accounts,Accounts are owned by the individual (not an employer). The individual decides: Whether he or she should contribute How much to use
49、for medical expenses Which medical expenses to pay from the account Whether to pay for medical expenses from the account or save the account for future use Which company will hold the account What type of investments to grow account,Revised August 18, 2004,37,HSA Accounts,Employer cannot restrict Wh
50、at distributions from an HSA are used for Rollovers HSA Custodian or Trustee can put reasonable limits on accessing the money in the account Frequency of distributions Size of the distributions,Revised August 18, 2004,38,HSA Accounts,Who can be an HSA Trustee or Custodian? Banks, credit unions Insurance companies Other entities that meet the IRS standards for being an IRA trustee or custodian Entities already approved by the IRS to be an IRA or Archer MSA trustee or custodian are automatically approved to be an HSA custodian IRS has provided model HSA Trustee and Custodian Forms,
