Solanco School DistrictOptional Health Care Plan

Fall 2013

A Qualified High Deductible Health Care Plan (QHDHCP)with a Health Savings Account (H S A)

What’s in this for......?

....ME!!??• Opportunity to grow a savings

account for medical costs• A good fit for many employees• Plan (Multi- year / Multi-need)

for future medical expenses...covered and not covered by plan

• Extend coverage for potential costs incurred by other family members

....The District!!??• Big picture - Designed to be

cost neutral • Individual picture – Adverse

selection risk • Self-Insured program• A good fit to Health Care

Market Direction and Health Care Decision

• Consumer Directed choice and options – [no choice on choice!!!]

Side Bar – Health Care as we Know it....PPACA....and as it will be.• Newsweek announced last year the elimination of “print”

mode...technology evolved over the past 25 years...and still is...• The Health Care Industry – 75 years + - Was told to evolve now!

It’s a little messy...• Exchanges - Accessible AND Affordable –W-2’s 2012 and beyond• How will this Change the whole Health Insurance delivery

model?....Don’t know all...but it will change.• Shift to Consumerism and Empowerment and Choice

– “Sell” to employers and HR, CEO and CFO Folks

– “Sell” to Jane sitting at her kitchen table with her i-Pad

High Deductible Health Plans• Come in two types– A Health Care plan that simply has a higher deductible –

usually means a deductible of $1000 or more –

– A Qualified (signified by the letter ‘Q’) plan has an upfront (before any benefits are paid) deductible and is most often offered in conjunction with an HSA

What is a “Q”HDHCP?• Must follow guidelines as laid out by the IRS...[required to

obtain the tax advantages prescribed]• Annual Deductible Minimum set by the IRS (2014)– $1,250 Individual and $2,500 family (IRS)

• Solanco Plan Will be a $2,000 Individual and $4,000 Family plan design

Qualified High Deductible Health Plan (QHDHP)

• QHDHPs generally have:– First dollar coverage (no deductible) for

preventive care–Higher out-of-pocket (copays &

coinsurance) for non-network services• All covered benefits must apply to the plan

deductible, including prescription drugs

Qualified High-Deductible Health Plan (QHDHP)

• Preventive Care - Examples– PPACA guidance provides list of preventive care that QHDHP

may provide as first-dollar coverage before minimum deductible is satisfied:• Periodic health evaluations (e.g., annual physicals)• Screening services (e.g., mammograms)• Routine pre-natal and well-child care• Child and adult immunizations• Tobacco cessation programs• Obesity weight loss programs

HSA Overview• A Health Savings Account (HSA) is a special account owned by an

individual used to pay for current and future medical expenses

• HSAs are used in conjunction with a Qualified High-Deductible Health Plan (QHDHP)

• 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• A QHDHP can be offered by a group as an option along with other type

plans OR can be a stand alone offering

What is an H S A? (1)• An employee owned bank account• Contributions can come from Employee (EE) or Employer

– Employer Contribution– EE Pre-tax via payroll– EE After tax contribution (out side of payroll)– EE Gifts– EE IRA transfer - 1 one per lifetime tax free– IRS annual maximum (2014)

• $3,300 individual• $6,550 Family• $1,000 per year catch-up provisions – age 55 end of tax

year.

What is an H S A? (2)• As an employee owned account, funds are rolled over every

year, not taxed on interest earned or when funds are used (i.e. used within IRS guidelines). Taxed as income with a 20% penalty if funds are used for non-medical expenses

• Contributions can be made generally up to April 15th ( tax return time) for the prior year….IRS rules governing contributions

HSA Contribution Rules

• Contributions 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

(currently excluded from income and wages)– If made by the individual (or in lieu thereof), it is an

“above-the-line” deduction– The maximum amount that can be contributed to an HSA

from all sources• $3,300 (self-only coverage) 2014• $6,550 (family coverage) for 2014 [includes working

spouses if both H S A eligible]

HSA Contribution Rules: Employee Contributions

• Can be made by a salary reduction arrangement through a cafeteria plan (section 125 plan amendment)

• Elections to make contributions through a cafeteria plan can change on a month-by-month basis (unlike salary reduction contributions to an FSA – flexible spending account)

• Remember that contributions to the HSA through a cafeteria plan are “pretax” and not subject to individual or employment taxes

HSA Accounts• No “use it or lose it” rules like Flexible Spending Arrangements

(FSAs)– All Dollar amounts in the HSA are fully vested– Unspent balances in accounts remain in the account until spent and

carry over year-to-year– Encourages account holders to spend their funds more effectively on

their medical care– Encourages account holders to shop for the best value for their health

care dollars

• Accounts can grow through investment earnings, just like an IRA– Same investment options and investment limitations as IRAs

HSA Accounts• HSA trustee must report all distributions annually

to the individual (Form 1099 SA).– Trustee not required to determine whether

distributions are used for medical purposes; the individual does that.

– Individual will report on annual tax return amount of distribution used for qualified medical expenses.

• Account holders must file Form 8889 as part of their annual tax return.

HSA Distributions• Distribution is tax-free if taken for “qualified medical

expenses”.• Qualified medical expense must be incurred on or after

the HSA was established.• Tax-free distributions can be taken for qualified 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)

Qualified Medical Expenses

• Expenses paid by the account beneficiary for his or her spouse or dependents for medical care as determined by section 213 (d) of the IRS code. – (See IRS publication 502; www.irs.gov)

• Expenses must not be covered by insurance or otherwise

H S A Account Access – Features (1)

• Participants have access to payment features for claim review and selection of reimbursement options

• Pay the vendor, pay themselves, divide payments and save funds in the account ( i.e. just write a check)

• Pay on-line, pay at the provider office• VISA Health Account Card

H S A Account Access –Features (2)

• Account management on-line• Real time balance• On-line payments can be made directly to a provider• Schedule payment in advance• Electronic Fund Transfer (EFT’s) can be utilized• Access to history of claims and spending

H S A Account Access –Features (3)

• FDIC- Insured• No setup or activity fees• Investment options…(to be determined)…generally with no

transaction fees (Health Equity H S A Bank)• Monthly account statements and annual tax statements

Employee Q Plan Eligibility

• Active Full Time Staff ( i.e. own a position and currently have Health Care Benefits)

• LTS not eligible – PPO plan• Employees Hired Before April 1 of each

Calendar year

Employee / Board Contribution

• Note: Minimum Employee Contribution (on the next slide) is a “diversion” of current employee premium share dollars

• Meaning, these funds are “ALREADY” being deducted from an employees paycheck.

H S A: Board and Employee Contribution Mix and Shares

Coverage Tier

District H S A Contribution

Minimum Employee premium

share

Total Minimum

H S A

Entry Year

Single 1,600$ 500$ 2,100$

Family 3,200$ 1,000$ 4,200$

Single 1,500$ 500$ 2,000$

Family 3,000$ 1,000$ 4,000$

Single 1,250$ 500$ 1,750$ Family 2,500$ 1,000$ 3,500$

3,300.00$

6,550.00$

District and Employee Contribution to Optional H S A QHDHCP

Year One

Year Two

Year Three

H S A : IRS Maxiumum Annual Total 2014

Funding Stream Example (year one Board share shown)

Dist + EE OptionalIRS Annual

Max: All sources

IRS:+55 catch-up

IRS Max w/+55 Catch-

up

Single yr 1 2,100$ 1,200$ 3,300$ 1,000$ 4,300$ 50.00$ 41.67$

Family yr 1 4,200$ 2,350$ 6,550$ 1,000$ 7,550$ 97.92$ 41.67$

Maxium for 2014

Per Pay examples:

Per Pay examples:

Show me the money.....• Year one: 100% of Board Contribution made in

January – 2014 “Class” January 2014 = $1,600 or $3,200

• Successive years: 65% in January --& 35% in September– 2013 Single Class : Jan 2014 = $975 & Sept 2014 = $525– 2013 Family Class: Jan 2014 = $1,950 & Sept 2014 = $1,050

• Employee Payroll Contributions – After Each Payroll [No less than Monthly]

• E-mail notifications----In and out.

For January 1, 2014

• Choose the ‘Q ‘plan with H S A (Options on H S A $ amounts, No FSA)

• Stay with H S A Plan.....Leave H S A Plan• Stay with the current PPO plan (FSA option, no H S A)• Spousal Rule certifications – Everyone; H S A context

– Surcharge is $1,523.18 for 2014 – [E + 1 Rate of $13,847.16 x 11%]

• Dual Coverage issues impact H S A selections ( i.e. you are “covered” by your spouses plan too)