1

November 3, 2008

HEALTH INSURANCE MEETING

Madelyn H. Hornstein, CPADermody, Burke & Brown, CPAs LLC

443 N. Franklin St.Syracuse, NY 13204

315-234-8190

2

“Health care is the only system where you can come in, receive services, have no idea what they cost and then leave without paying,“

Do you know how much your Health Care costs annually?

3

What is the insurance for?

Why do we buy it?

Do we need it?

If so, how much?

Can we self insure ourselves?

ASK YOURSELF THESE QUESTIONS FOR ALL TYPES OF INSURANCES:

Typical types of insurance: health, dental, cancer, life, homeowners, long term care, business liability, umbrella, automobile, malpractice, etc.

“Health care is the only system where you can come in, receive services, have no idea what they cost and then leave without paying,"

4

Where Do You Fall?

- 67% of ALL utilizers incur under $1,000 annually in medical & Rx services

- 31.2% of ALL utilizers incur $1,000 to $10,000 annually in medical & Rx services

- 1.8% of ALL utilizers incur over $10,000 annually in medical & Rx services

5

Let’s Compare Premiumsfor Single Health Coverage

Month

January

February

March

December

UHC-EPO

Traditional

$314. 93

$314.93

$314.93

$314.93

$2,000 High

Deductible

$232.50

$232.50

$232.50

$232.50

Cumulative

Difference

$82.43

$164.86

$247.29

$989.16

Total $3,779.16 $2,790.00 $989.46

•How much have you spent in Health Care this year?

•How much do you expect to spend in Health Care in 2008?

6

Let’s Compare Premiumsfor Single + 1 Health Coverage

Month

January

February

March

December

UHC-EPO

Traditional

$661.35

$661.35

$661.35

$661.35

$4,000 High

Deductible

$488.25

$488.25

$488.25

$488.25

Cumulative

Difference

$173.10

$346.20

$519.30

$2,077.20

Total $7,936.20 $5,859.00 $2,077.20

How much have you spent in Health Care this year?

How much do you expect to spend in Health Care in 2008?

7

Let’s Compare Premiumsfor Family Health Coverage

Month

January

February

March

December

UHC-EPO

Traditional

$875.81

$875.81

$875.81

$875.81

$4,000 High

Deductible

$646.59

$646.59

$646.59

$646.59

Cumulative

Difference

$229.22

$458.44

$687.66

$2,750.64

Total $10,509.72 $7,759.08 $2,750.64

How much have you spent in Health Care this year?

How much do you expect to spend in Health Care in 2008?

8

I have a High Deductible Health Plan (HDHP)-Now What?

• Cross your fingers and hope that you don’t get sick, or

• Pay for any medical expenses that you incur out of your pocket until reaching the deductible, or

• Set up a Health Savings Account (HSA) at a bank to cover your medical expenses

_______________________________________________________

9

What will this change cost me?SINGLE

Month

January

February

March

April

Total Monthly

Premium

Cost

$232.50

$232.50

$232.50

$232.50

Employee Premium

Cost

$65.83

$65.83

$65.83

$65.83

Employer Premium

Cost

$166.67

$166.67

$166.67

$166.67

Employer HSA

Contribution

$500.00

$0

$0

$500.00

Total $2,790.00 $790.00 $2000.00 $1,000.00

Premium cost is comparable to what you were paying for old insurance.

Bi-weekly payroll deduction is $30.38

Employer is continuing to contribute $3,000 towards cost.

10

What will this change cost me?SINGLE

Plus 1

Month

January

February

March

April

Total Monthly

Premium

Cost

$488.25

$488.25

$488.25

$488.25

Employee Premium

Cost

$321.58

$321.58

$321.58

$321.58

Employer Premium

Cost

$166.67

$166.67

$166.67

$166.67

Employer HSA

Contribution

$500.00

$0

$0

$500.00

Total $5859.00 $3859.00 $2000.00 $1,000.00

Premium cost is less than what you were paying for old insurance.

Bi-weekly payroll deduction is $148.42

Employer is continuing to contribute $3,000 towards cost.

11

What will this change cost me?FAMILY

Month

January

February

March

April

Total Monthly

Premium

Cost

$646.59

$646.59

$646.59

$646.59

Employee Premium

Cost

$479.92

$479.92

$479.92

$479.92

Employer Premium

Cost

$166.67

$166.67

$166.67

$166.67

Employer HSA

Contribution

$500.00

$0

$0

$500.00

Total $7759.08 $5,759.08 $2000.00 $1,000.00

Premium cost is less than what you were paying for old insurance.

Bi-weekly payroll deduction is $221.50

Employer is continuing to contribute $3,000 towards cost.

12

Allows you to pay for the following expenses with pre-tax dollars. You save Social security, Federal & New York state income taxes.

Cafeteria Plan

Insurance Premiums- whatever portion of the premium you are responsible for can be run through pre-tax.

Flexible Spending Accounts (FSA)•Medical, Dental, & Vision Expense reimbursement of up to $2,400 per year. (May no longer be used by those employees eligible to make HSA contributions)

NEW:Health Savings Account (HSA) contributions: The election should take into consideration the amount the employer is contributing to confirm that total contributions will not exceed maximum allowable limits.

2008 Maximum is $5,800 for Family & Joint, $2,900 for Single.Extra $900 allowed if age 55or older.

13

Cafeteria Plan OptionsI have Health Insurance through my spouse’s employer:

•You can still opt for the FSA (Medical, Dental & Vision Expense reimbursement) You must select a specific dollar amount and if you don’t use it, you lose it. $2,400 maximum/year.

I have elected the High Deductible Insurance option here:

•The premiums that you are responsible for will continue to run through your salary on a pre-tax basis.•You can set up a HSA and request that a certain dollar amount be withheld each pay period. This amount will automatically be forwarded to your HSA account. •You may make additional contributions into the HSA account on your own. (Note if they are not run through your payroll, you will not receive the 7.65% social security tax savings)

14

Comparison with a Flexible Spending Account (FSA)

Flexible Spending Account– Part of IRC §125 Plan aka

Cafeteria Plan – Contributions are pre-tax

(both income & social security)

– Use it or lose it– Requires claims processing– No HDHP required to be

eligible for FSA– Maximum election is available

at all times during the year for the Medical, Dental & Vision FSA

Health Savings Account– Employee or employer can

make contributions– Contributions are not subject to

income tax. – Social security tax is saved if run

through company §125 Plan – Money not spent carries over to

next year– No claims processing-individual

reimburses themselves– HDHP required– Reimbursement is limited to

amount available in the account

15

Why is everyone rewarded?

If Healthy:

• $ accumulating in HSA is yours to keep and rolls over to a year in which you may not be as healthy or for your retirement years.

• $ in HSA can be used to pay “non-medical” (dental, braces or vision) expenses that wouldn’t have been covered under old policy.

__________________________________________________

16

Why is everyone rewarded?If you are a High User of Medical:• Your portion of the premiums is about

the same as before and there is $1,000 set aside into the HSA to help with your deductible.

• The money that you used to have to come up with out of your own pocket to pay the co-pays is now in the HSA to pay the providers.

• HSA maximum is higher than the $2,400 FSA maximum and you don’t lose it.

• As soon as you reach the $2K or $4K deductible, 100% of the costs are covered.

__________________________________________________

17

Contributions can be made by the Employee OR

Employer or a combination• Eligible individuals can deduct the

contributions on their tax returns.• The employee doesn’t need to itemize

their deductions on their tax return to claim a deduction. It is an above the line deduction-unlike medical expenses

• Employees can also make their contributions through a company provided Cafeteria Plan if available to save the social security taxes as well as income taxes.

18

Withdrawals from HSA

• Must be reported on your income tax return (Form 8889)

• Withdrawals for something other than qualified medical expenses are taxable

• They are also subject to a 10% penalty unless the account owner:– Is 65 or older– Is disabled, or– Has diedEligibility to make add’l HSA contributions at

time of withdrawal is irrelevant

19

What happens when you die?

• If spouse is the beneficiary, then it becomes the spouse’s HSA

• Otherwise, the account ceases to be an HSA upon death and the beneficiary must take the money, pay taxes on it and use it for whatever they want.

• It is very important to keep your beneficiary designations up to date!

20

Who can set up a HSA?

• You are eligible if you are covered by a HDHP (High Deductible Health Plan)

• You are not covered under any other non HDHP (with exceptions)

• You are not enrolled in Medicare (i.e., under 65)

• You can’t be claimed as a dependent on someone else’s return.

21

What is a Health Savings Account (HSA)?

• It is a health plan• Coordinates with a

High deductible health Plan

• Implements consumer driven health care

• Helps pay your deductible

• It’s a savings plan• Contributions are

deductible• Earnings are tax-free• Distributions are tax

free if used for medical expenses

• No “use it or lose it”

22

HSA = Medical IRA

• Think of an HSA as an IRA for health care– Fully vested– Completely portable– Account is in your or your spouse’s name,

no ties to the employer– Contributions can be made by your

employer or you or combination of both

HSA’s are set up with a Bank, Insurance company or any other approved non-bank trustee (brokerage house, etc.)

23

Spend it or Save it?• HSA’s are Wealth Builders• HSA’s are ahead of all 401(k) & IRA’s

as far as tax advantages• Unlike retirement plans, HSA’s let you

avoid taxes on the front end and the back end!

• You can contribute to them regardless of your income and you never hit an age when you’re required to start taking some of your money out.

• Of course, if you don’t have money to be able to pay current medical costs out of your pocket-tap into the HSA.

24

Funding of HSA Contributions

• The contribution can be made any time up to the Individual Income tax return (Form 1040) due date (April 15th), even if the individual is no longer eligible when the contribution is made.

• Extensions for filing your income tax return do not give you additional time to get the money into the HSA account.

25

Which type of investment account offers the best TAX

advantages?

• Personal investment account• 401(k) account• Section 529 Plan (College Svgs) • Health Savings Account (HSAs)• Roth IRA• Variable Annuity

Answer: HSA (pre-tax going in AND coming out as long as it is used for medical related expenses!)

__________________________________________________

26

RECOMMENDATIONS:Order for Savings:Contribute into your 401(k) plan the % that allows you to get the maximum matching contribution. (example: if the company matches 25% on 1st 6% of salary contributed, then you should put in 6% of your salary)

Max out on your allowable HSA contributions.

Make a Roth IRA contribution (if allowed).

If you still have money to save, put more of your salary into the 401(k) plan.

Keep an eye on the savings you already have.

Begin saving more than you are currently.

Please practice good health and go to the doctor for routine checkups and seek medical care when necessary.

Websites: planforyourhealth.com, hsainsider.com, benefitslink.com, irs.gov (Publication 969).