Considering an Considering an HDHP With an HSA?HDHP With an HSA?

2

Part 2: Health Savings Account

Made by: Employer, Employee, and/or other party

Basic HSA Plan Concept

Part 1: High Deductible Health Plan

HSA Concept

Can pay for eligible

expenses not covered by the

health plan

Intended to cover serious

illness or injury

*Contributions do not need to be prorated based on the date coverage began, as long as qualifying coverage is maintained through December 31st of the following year.

For 2008 Single Family

Min. Deductible $1,100 $2,200

Max. Out of Pocket $5,600 $11,200

For 2009 Single Family

Min. Deductible $1,150 $2,300

Max. Out of Pocket $5,800 $11,600

For 2008 Single Family

Max. Contribution

$2,900 $5,800

For 2009 Single Family

Max. Contribution

$3,000 $5,950

3

Why choose an HSA-Compatible health plan?

Premium Savings According to employers surveyed by HSA Bank, over

59% reported saving an average of 10 – 39% Lower future renewal costs

Premium increases in HSA plans averaged under 3% while HMO, PPO and Indemnity plans hovered over 7%. (The Maine View)

Ability to offer health insurance to employees 27% of small group market did not previously offer

insurance coverage to employees (ehealthinsurance)

Employee opportunity to control healthcare spending

Decreased rise of health care costs through lower utilization

4

Advantages of an HSA

For an Employer Tax benefits Employee-owned funds promote increased

motivation for involvement in healthcare decisions resulting in: Healthcare dollars being spent more wisely Employees ‘shopping around’ for healthcare based on

quality of care and price HSAs allow “matching” contribution options by

employers and employees through a cafeteria plan

5

Advantages of an HSA

For an Employee Funds roll over year to year

No need to “use it or lose it” Tax benefits on the contributions, earnings,

and distributions Potential for increased take-home pay

Long-term investment opportunity

6

Additional HSA Funding Options…

IRA funds may be rolled to an HSA on a one-time basis Subject to the annual HSA contribution maximum Only traditional IRAs qualify at this time Individuals must remain covered by a qualifying HDHP until the last

day of the 12th month following the month of rollover to avoid tax penalties

HRA and Health FSA may be rolled to an HSA Employers must amend their plan documents to allow this Rollovers must be made directly from the employer to the

custodian/trustee The IRS can help you determine if this is a possibility

*Always consult a qualified tax advisor, and/or the IRS for details and reporting requirements in regard to taxation, fund rollovers and other

stipulations.

Designing Designing Your HSA Your HSA OfferingOffering

8

HSAs, HRAs, FSAs

HSA HRA FSAAccount owner

Employee Employer Employee

FundingEmployee, Employer,

OtherEmployer

Employee,Possible

Employer

Roll over year-to-year

YesGenerally

NoNo

Portable YesGenerally

NoNo

9

How HSAs & FSAs Can Work Together

Limited Purpose FSA (can have with an HSA) Pay for dental and vision expenses without having to use HSA funds

Health FSA (cannot normally have at the same time as an HSA)

Extension provides 2.5 months beyond the end of the plan year to use FSA funds

Recent legislation allows employees to contribute to HSAs during the extension if their FSA balance is zero during that time or the total FSA balance is transferred to an HSA.

Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.

Jan. – Dec. Plan March 15th extension

May –April Plan July 15 extension

$0 bal. May 1-July 15

$0 bal. Jan. 1-March 15

$5 bal. Feb. 6th, $0 bal. Feb 7th

$32 bal. May 2nd

Eligible to contribute to HSA NOT Eligible to contribute to HSA

Example of when HSA contributions can be made if an individual still has a Health FSA. This assumes that the FSA plan is not renewed after the extension.

Plan Year

10

How HSAs & HRAs Can Work Together

Three types of HRAs you can have with an HSAPost deductible HRA—pays for out-of-pocket

expenses after the HDHP deductible has been met

Retirement HRA—Designated for medical expenses after retirement

Suspended HRA—Cannot make contributions or take distributions from the HRA while contributing to the HSA

11

Design Makes a Difference

Business Relations Can Provide Customized HSA Design Ideas Things to consider

How many employees will be offered an HSA-compatible health plan?

How many health plan options are being offered?

What are your objectives for offering the HSA plan?

What is your goal for % enrolled?

12

Plan Design Stats

A 2006 survey of nearly 200 agents and employers regarding plan design indicates thatMore than 83% of employers contribute to their

employees’ HSAsOf those employers, 78% contributed at least 20%

of the deductible in the 1st yearOf those employers, 71% contributed at least 20%

of the deductible beyond the 1st yearNearly 72% of employers pay the set-up feesNearly 25% of employers pay the monthly fees

Employee Employee CommunicatioCommunicatio

nn

14

Benefits of Communication & Education

HSA plan selection--Based on an HSA Bank survey, when an employer spent at least 90 minutes explaining the HSA concept, the number of employees that selected an HSA plan grew by more than 21% Financial gain

Immediate: communication/education leads to employee HDHP acceptance, which will decrease premium costs (supply and demand)

Long-term: Employees are in control of healthcare spending and thus utilization decreases

Consumers paid an average of $348 less in 2005 for HSA-eligible health insurance plans compared to 2004 (ehealthinsurance – July 27,2005)

Overcoming the stigma of an HDHP Pre-enrollment and ongoing communication/education

enables employees to see beyond a higher deductible to the benefits an HSA plan has to offer

15

Employee Communication Tips

Begin education early Combine multiple forms of communication: printed, web,

multi-media, in-person Emphasize the benefits of choice and empowerment

HSAs require employees to approach their healthcare in a new way, which puts them in control of their healthcare dollars

Employees need to: Ask about price Ask if procedures are necessary Discuss with their physician if alternatives exist

Compare current plan design with HSA-compatible plan design

Illustrate the tax benefits and long-term savings potential Involve spouses in the communication process

16

4. OngoingMonthly Employee Communications

2. Pre-enrollmentFact Sheet Brochure

Web Tools Including CalculatorsPowerPoint and Macromedia®

flash presentations

Employer Communication Kit

HSA Bank offers a comprehensive communication kit, which guides employers through the stages of their HSA program and provides important educational materials:

1. ImplementationEmployer Welcome Kit

3. EnrollmentEnrollment Instructions

Outline of what employees will receiveSample Emails

Sample Employee Welcome Kit

17

Are HSAs changing spending behavior?

Increased Consumerism in Healthcare (Research results from McKinsey & Co., June 2005)

Consumer-directed health plan holders were more value conscious and attentive to wellness & prevention and therefore:

50% more likely to ask about costs30% more likely to get an annual exam25% more likely to engage in healthy behaviors20% more likely to comply with treatment

regimens300% more likely to choose less expensive

options

18

Based on HSA Bank’s customer base of over 186,000 accounts as of December 31, 2007 96.5% of all open accounts rolled over funds from 2007 to

2008 On average, accounts rolled $2163 into 2008 Average contribution per month = $214 Average distribution per month = $173 Average monthly savings = $41 Nearly 18% of accountholders saved all contributed funds

and rolled over an average balance of $4013 into 2008. More than a third of accountholders saved at least 50% of

their 2007 contributions.

Account Trends

Tax BenefitsTax Benefits

20

Tax Treatment and Advantages for an Employer

Treated as employer-provided coverage for medical expenses under an accident or health plan

Excludable from gross incomeNot subject to withholding for income taxNot subject to other employment taxes

(i.e., Social Security and Medicare taxes (FICA), federal unemployment tax (FUTA), or the Railroad Retirement Tax Act)

21

Tax Treatment and Advantages for Employees/Accountholders

Contributions are either pre-tax through a cafeteria plan or tax-deductible

Earnings HSAs grow in the same tax-deferred manner as

IRAs Interest and investment income are also tax-free or

tax deferred Distributions

Withdrawals for qualified medical expenses are always tax-free. After age 65, funds may be withdrawn for any reason without penalty, subject to regular income tax.

How to Get StartedHow to Get Started

23

Enrollment Options

Group Online Enrollment (generally most efficient method regardless of size) Employer initiates enrollment via our group set-up site

Choose type of approval Choose how fees will be paid

Employee Completes information on customized enrollment site

Electronic Enrollment Originated From Paper (typically used by larger groups when group online enrollment is not chosen) Employee completes paper application Employer creates electronic data files and images of the

paper applications Individual Online Enrollment (used when the employee pays the fees)

Employee completes information on individual online enrollment site

Paper Applications Employee fills out paper application and sends to HSA Bank

24

How are Fees collected

If Employers are paying: The employer can pay fees up front for the

remainder of calendar or plan year Employer can be invoiced Per employee pricing available on a monthly or

quarterly basis

If Employees/Accountholders are paying: Set-up fees are paid with the submission of the

application Monthly fees will be deducted from the account

25

Coordinating HSA Contributions

EMPLOYERCONTRIBUTIONS

HSA Contribution

LimitsUp to the IRS determined

maximums

2008:

$2,900 single$5,800 family

2008:$3,000 single$5,950 family

≤INDIVIDUAL / EMPLOYEE

CONTRIBUTIONS

Since both employees and employers can make contributions, it is important to coordinate in order to avoid excess contributions and tax penalties. The maximum can be contributed through a combination of sources or a single source as long as the annual limit is not exceeded.

IRA Transfers

*If an individual has HSA accounts with different administrators, all contributions count toward the annual contribution maximum.

26

Employer Contributions

Online (ACH Pull) Convenient in-house system in Employer Login area Provided list of all employees tied to Federal ID # Columns after each name for ER, EE, EX allows for simple

designation of employer, employee and employee pre-tax contribution amounts

ACH Direct Employer sends ACH direct to employee’s accounts Utilize discretionary data field in ACH file to code contribution sources

Company ACH or Wire Transfer + File Company sends one ACH or Wire Transfer + File The transaction file dictates how the money is distributed to each

account

Submit a Check With Contribution Form

27

Employer’s Comparable Contributions

Comparability testing period based on a calendar year and determined on a monthly basis. Testing based on contributions to employees covered under the employer’s HDHP. There is a 35% penalty for failing to meet comparable contribution requirements. Note: The employer must make comparable contributions

for all employees with HDHPs who open HSAs under the employer’s plan. Contact the IRS to determine the requirements for employees who have an HSA-Compatible health plan but have not opened an HSA by December 31st.

28

Exceptions to the Comparability Rule

Exceptions Due to new legislation, employers may contribute

more for employees who are non-highly-compensated employees (non-HCEs) as long as contributions compare within employment categories. Non-HCEs are defined under Internal Revenue Code §414 (q)

Comparability rules do not apply to employer contributions made through a Section 125 Cafeteria Plan.

Employers may make matching contributions through a Section 125 Cafeteria Plan (Non-Discrimination rules apply)

29

Comparable Contributions Example

Family

 Single / Full-Time

Self + One / Full-Time

Self + Two / Full-Time

Self + Three / Full-Time

HCENon-HCE HCE

Non-HCE HCE

Non-HCE HCE

Non-HCE

Deductible

$1200 $1200 $2500

$2500

$2500

$2500 $2500 $2500

Same Dollar $100 $200 $150 $250 $175 $275 $200 $300

% ofDeductibl

e50%$600

75%$900

25%$625

30%$750

50%$125

0

60%$150

075%

$187580%

$2000

*Employer may contribute up to the maximum amount as determined by the IRS. For 2008: $2900 for individual coverage and $5800 for family coverage For 2009: $3000 for individual and $5950 for family.

**Apply the same concept for part-time employees within each category

30

Employee Contributions

Online Contributions (through Internet Banking)Recurring or one-time, as needed

CheckWith Contribution Form tear-off (on each

statement or downloaded from website) With Deposit Ticket

31

Savings Account Option

Interest bearing “bank” accountAccounts are opened as an FDIC-insured

bank account through Webster Bank, N.A.Current interest rate and annual percentage

yield information is available on our website, www.hsabank.com or by calling 800-357-6246.

Interest rates are subject to change. Fees may reduce earnings.

32

Self-Directed Investment Option

TD Ameritrade Corporate ServicesAccess to stocks, bonds and over 11,000

mutual fundsTrades are made online or over the

phoneTransfer funds from your HSA to your

investment account:Online through Internet BankingBy calling the Client Assistance Center

HSA Bank does not charge a fee; however, trading fees may apply

33

Mutual Fund Selection

Devenir Investment AdvisorsSelection Options

Employer can choose to offer our standard selection of historically top-performing mutual funds

For an additional fee, employers can choose to select mutual funds similar to their 401(k) offering

Trades are completed online through HSA Bank’s Internet Banking system

HSA Bank does not charge a fee. An annual fee of $24 is charged by the Mutual Fund Selection vendor; however, no trading fees apply

34

Methods of Distribution

Debit Card from Visa POS with signature

(no transaction fee)ATM with PIN ($2 fee)POS with PIN ($2 fee)

Checks, $7.95 for 50 + 10 deposit tickets (no transaction fee)

Withdrawal Forms ($10 fee)

35

Communication & Reporting

Accountholder Account statements IRS reporting Email confirmation of account opening and

ongoing activity

Employer Email confirmation of deposits Employer newsletter Email updates on consumer-driven health

care and HSA account features Aggregate reporting available upon request

36

Calculation Tools

Is an HSA Right for Me Compares a traditional health plan with an HSA-compatible

plan to determine potential savings http://www.hsabank.com/calculators/decision_tool.aspx

Future Value Calculator Calculates tax savings on contributions and tax-deferred

growth as well as the future value of your Health Savings Account http://www.hsabank.com/calculators/future_value.aspx

37

www.hsabank.com

HSA Bank has created a website to serve the specific needs of and provide relevant information to: Prospective accountholders

Calculation Tools HSA Information Enrollment

Accountholders Internet Banking Self Service (forms, check/debit card orders, secure contact form)

Employers Employer Administration Area Group Online Enrollment Group Online Contributions Communication Kit

38

Employer Login Area

Online access for employers to:View and manage their list of employees with

HSAsUpload contribution data and census filesSign-up for updatesSign-up for Group Online EnrollmentMake online contributions to employee HSAs

(separate sign-up required)

Download the communication kit

39

Application materialsBrochure InsertsWelcome letterCustom toll-free number

Customization Options

40

Expertise & Commitment

Industry leadershipHave over $500 million in FDIC insured

deposits and over $65 million additional dollars in non-FDIC insured investment accounts

Administer more than 210,000 accounts in all 50 states

41

Experience

Ten years in the HSA-industry Began with Medical Savings Accounts in

1997 Continued with HSAs in 2004

Maintain relationships with over 300 health plans/TPAs

Work with more than 15,000 employer groups

42

Service & Support

Business Relations Department: Exclusively assists our employer, agent, broker, broker/dealer, health plan & TPA clients. (866) 357-5232 Monday-Friday 7 a.m. – 7 p.m. CST

Regional Vice President & Assistant Vice President: Provide local assistance for our employer, agent, broker, broker/dealer, health plan & TPA clients.

Client Assistance Center:Provides dedicated customer service to individual and prospective accountholders.

Spanish Language Support:Our Client Assistance Center and Business Relations teams provide Spanish language support for employer relationships, accountholders and prospective accountholders.

Experience:Our Business Relations Coordinators and Client Assistance Center receive the most comprehensive and up-to-date HSA training in the industry. Our representatives have a strong customer service background and many have worked in finance, insurance, and benefits administration.

Thank you for considering…

*Investment products are not FDIC insured, are not a deposit or other obligation of or guaranteed by the bank, and are subject to investment risks including possible loss of the principal amount invested.

zixbypass