WelcomeToConsumer DrivenHealth CareakaIndividual Health Savings AccountsP.L. No. 108-173, section 223

How HSA Came to Pass06/27/03H.R. 1 passes House 216-21506/27/03S. 1 passes Senate 76-2107/14/03Medicare Conference begins11/21/03Conferees complete work11/22/03House passes final bill 220-21511/25/03Senate passes final bill 54-4412/08/03President Bush signs Medicare bill into law

Changes for 2009

Annual Contribution IncreasedAnnual Contribution is Better

Increase in annual HSA contribution. Previously, the maximum HSA contribution was the lesser of the deductible of the individual's HSA-eligible plan or a statutory maximum. The new rules make the limit the statutory maximum contribution, regardless of the individual's deductible. For 2009, the maximum contribution for an eligible individual with self-only coverage is $3,000, and the maximum contribution for an eligible individual with family coverage is $5,950. These limits are indexed for inflation.

HSA

Allows RolloversAllows Rollovers thru 2011

Allow rollovers from health FSAs and HRAs into HSAs through 2011. Employers can transfer funds from Flexible Spending Arrangements (FSAs) or Health Reimbursement Arrangements (HRAs) to an HSA for employees switching to coverage under an HSA-compatible health plan. The amounts rolled over to HSAs from FSAs or HRAs are over and above the amounts allowed as annual contributions. The maximum contribution is the balance in the FSA or HRA as of September 21, 2006, or if less, the balance as of the date of the transfer. The provision is limited to one distribution with respect to each health FSA or HRA of the individual. If an individual does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax.

HSA

Allows full Contribution ImmediatelyNo Pro-Rated Amounts

Full HSA contribution regardless of month individual becomes eligible. Normally, the HSA contribution is pro rated based on the number of months that an individual was an eligible individual during a calendar year. The new provisions provide an exception to this rule that will allow individuals who become covered under an HSA-eligible plan in a month other than January to make the maximum HSA contribution for the year based on their coverage in the last month of the year. This eliminates a common barrier to switching to HSA-eligible coverage. If an individual does not stay in the HSA-eligible plan 12 months following the last month of the year of the first year of eligibility, the amount which could not have been contributed except for this provision will be included in income and subject to a 10 percent additional tax.

HSA

Allows One Time TransferCan Transfer from IRA to HSA

One-time transfer from IRAs to HSAs. The new rules allow for a one-time contribution to an HSA of amounts distributed from an Individual Retirement Arrangement (IRA). The contribution must be made in a direct trustee-to-trustee transfer. The IRA transfer will not be included in income or subject to the early withdrawal additional tax. The transfer is limited to the maximum HSA contribution for the year, and the amount contributed is not allowed as a deduction. Generally, only one transfer may be made during the lifetime of an individual. If an individual electing the one-time transfer does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax.

HSA

Allows EmployerContributionFlexibilityMore for Lower Paid

Allow greater employer contributions for lower-paid employees. Previously, employer contributions under the comparability rules had to be the same amount or percentage of the deductible for all employees with the same category of coverage. Consequently, employers could not contribute higher amounts to lower-paid employees. The new rules provide an exception to the comparability rules allowing employers to contribute more to the HSAs of non-highly compensated individuals. For this purpose, the definition of "highly compensated employee" is based on the same definition used for qualified retirement plans.

HSA

Definition of HSADefine HDHPCan Network Plan Qualify?ExceptionsFor Eligible Individuals

Tax-exempt trust or custodial account To pay qualified medical expenses If covered by High-Deductible Health Plan Not covered by non-HDHP (some exceptions) Not entitled to Medicare (generally under 65) May not be covered as Dep on anothers taxes.Can Self-Insured Plan Qualify?HSA

Define HDHPCan Network Plan Qualify?ExceptionsDeductible & OOP Requirements2009 published limits

$1,150 Deductible minimum for Individuals$5, 800 OOP Maximum for Individuals$2,300 Deductible Minimum for Families$11,600 OOP Maximum for FamiliesNot including 1st Dollar Preventive Care Can have higher deductibles and lower out-of-pocket expense capsYou may not have a plan with office visit co-pays, or an Rx plan with co-pays.Some carriers are adding back an Rx co-pay after the HSA deductible has been met.

Note: For 2009, the maximum annual HSA contribution for an eligible individual with self-only coverage is $3,000. For family coverage the maximum HSA contribution is $5,950. Under recent legislation, these amounts are the maximum HSA contribution amount regardless of the amount of the HDHP deductible.

Can Self-Insured Plan Qualify?HSADefinition of HSA

Define HDHPCan Network Plan Qualify?Network Plans Qualify

Has richer In-Network BenefitsOut of Network Benefits can Exceed limitsOON Benefits not used in determining Contribution LimitsIn-Network Deductible used in Determining Contribution LimitsExceptions

Can Self-Insured Plan Qualify?HSADefinition of HSA

Define HDHPCan Network Plan Qualify?ExceptionsCan Still Have:

Workers Compensation Plan CoverageAutomobile Insurance CoverageOther Property InsuranceTort Liability Insurance CoverageAccident InsuranceDental InsuranceVision InsuranceLong Term Care InsuranceDaily Hospital Fixed Amount per DaySpecified Disease or Illness Coverage

Can Self-Funded Plan Qualify?HSADefinition of HSA

Define HDHPCan Network Plan Qualify?ExceptionsSelf-Insured Plans

Employer sponsored Self-Insured Plans QualifyMust meet Deductible and OOP requirementsCannot have a deductible for preventive careHSACan Self-Insured Plans Qualify?Definition of HSA

Who Can Contribute?How to Start HSAContributions

Both Employee and Employer can ContributeFamily Members may Contribute on each others behalf-if they are both eligible individualsHSA contributions by employees can be made on a pre-tax basis through Section 125 of the Code (cafeteria plan) ERs usually make same dollar amount or same % of the deductible contributions on behalf of all EEs in same coverage categoryHowever, employers can now give more to lower paid employees (see 8th slide)There is a 35% excise tax of amount contributed for violationsHSAWho is Qualified Trustee or Custodian?

Who can Contribute?How to Start HSAHSA Start-Up

Many begin on a January 1stNow easier to start plan mid-year Same as starting IRA or Archer MSANo permission from IRS needed Can establish HSA without Employer involvementMust use Qualified Trustee or CustodianA fiscal year plan that satisfies the requirements for an HDHP on the first day of the first month of its fiscal year may apply that deductible for the entire fiscal year.HSAWho is qualified Trustee or Custodian?

Who can Contribute?How to Start HSAQualified Trustee/Custodian

Defined in section 408(n)Any Insurance CompanyAny Bank or similar institutionSee Regulation 1.408-2(e) relating to non-bank trusteesDoes not have to be same institution that provides the HDHPHSAWho is Qualified Trustee or Custodian?

Maximum ContributionEarnings RequirementsDistributionsMaximum Contributions-2009

$3,000 ($250.00 per Month) $5,950 ($495.83 per Month) Catch-up Contribution allowed if age 55 + No earnings requirements to contribute Earnings grow tax free All HSA contributions made on behalf of individual are aggregated for limits calculation Catch-up contribution limit is $1,000 in 2009 for individuals and spouses between ages 55 & 65 Catch-up amount will increase $100 annually until it reaches $1,000 in calendar year 2009

HSA

Maximum ContributionDistributionsEarnings Requirements

None Can contribute for 2008 thru April 15th, 2009 Contributions must be made in cash-not stock or other property Contributions are above-the line deductible whether the individual itemizes or not If you may be claimed as a dependent you may not deduct contributions to an HSA There is a 6% penalty if you over-contribute Can make it right before deadline (skip 6%) Employer contributions not subject to FICA or FUTA or Railroad Retirement Tax ActHSAEarnings Requirements

Maximum ContributionDistributions

Permitted at any time Any amount not used to pay for qualified medical expenses of the account beneficiary, spouse or dependents is includable in gross income and is subject to an additional 10% tax on amount includableunless distributions made after account beneficiarys death, disability, or attaining age 65 Burden of proof for proper use of distributions is on the account beneficiary not the trustee, custodian or the employer Upon death any remaining balance in HSA becomes the property of named beneficiary This does not include distributions made for final qualified medical expenses made within one year of deathHSAEarnings RequirementsDistributions

Other MattersOther Matters Discrimination rules no longer demand that ER contribute same amount or same percentage of the deductible for all participating EEs HSA can be offered under a cafeteria plan thus contributions are then made on a salary-reduction basis HSAs are not subject to COBRA, but you can pay for your COBRA with HSA dollars May use debit, credit or stored-value cards to receive distributions Rollover contributions from IRAs, Archer MSAs and other HSAs are permittedHSA

Several Big Tax AdvantagesPre-tax contributions/deposits tax-freeEarnings tax-freeDistributions/expenditures not taxable upon withdrawal for appropriate IRS allowed medical expenses

Better treatment than a 401(k) plan

HSAsSales Expectations?

How do you feel about HSAs?

Who do you think will buy them?

Who buys HSAsInitial Sign upAetna ResultsResults to date

50% of purchasers are over age 40

77% are families with children

42% make less than $50,000/year

http://press.fortishealth.us.fortis.com/fh/press-release-cm/newsroom/hastertReport by eHealthInsurance

HSA

Who Buys HSAsAetna ResultsEarly Results

438,000 people sign up for HSAs in first 9 months-November 2004

31% were previously uninsured buying health insurance on their own

3.2 million in HSAs by December 2005

33% were small businesses not previously offering coverage

www.ahip.orgHSAInitial Sign up

Who Buys HSAsEarly Results

Use of preventive services up by 23%

5.5% decrease in Rx costs and a 7% increase in overall generic utilization

3.7% medical cost increase, compared to double-digit increases for a similar population

Medical costs fell by 11% for one full- replacement plan sponsor

http://www.aetna.com/news/2004/pr_2004D622.htm

HSAInitial sign up

Aetna Results

Watson WyattBooz Allen HamiltonNBGH Survey

8% of large employers surveyed now offer HSAs

Another 18% plan to offer HSAs next year

47% are considering them for future

75% of employers say, HSAs are effective vehicles to engage employees more in managing their health, 49% arent sure if they will help lower costs.HSA

Watson WyattFuture of HSAs

HSAs will begin a new movement toward building personal financial security

Expect consumers to demand package pricing for high cost services

CDHPs and HSAs will begin to restructure both the healthcare world and the financial services world in profound ways. HSA

Booz Allen Hamilton

Watson WyattFuture HSA Projections

14 million HSA policies covering 25 to 30 million people by 2010 based on current law

21 million HSA policies covering 40 to 45 million people by 2010 based on the Presidents health care initiativeHSA

Treasury Department

If excess contributions for a taxable year and the net income attributable to such access contributions are paid to the account beneficiary before the last day prescribed by law (including extensions) for filing the account beneficiarys federal income tax return for the taxable year, then the net income attributable to the excess contributions is included in the account beneficiarys gross income for the taxable year in which the distribution is received, but the excise tax is not imposed on the excess contribution and the distribution of the excess is not taxed. If excess contributions for a taxable year and the net income attributable to such access contributions are paid to the account beneficiary before the last day prescribed by law (including extensions) for filing the account beneficiarys federal income tax return for the taxable year, then the net income attributable to the excess contributions is included in the account beneficiarys gross income for the taxable year in which the distribution is received, but the excise tax is not imposed on the excess contribution and the distribution of the excess is not taxed. If excess contributions for a taxable year and the net income attributable to such access contributions are paid to the account beneficiary before the last day prescribed by law (including extensions) for filing the account beneficiarys federal income tax return for the taxable year, then the net income attributable to the excess contributions is included in the account beneficiarys gross income for the taxable year in which the distribution is received, but the excise tax is not imposed on the excess contribution and the distribution of the excess is not taxed. If excess contributions for a taxable year and the net income attributable to such access contributions are paid to the account beneficiary before the last day prescribed by law (including extensions) for filing the account beneficiarys federal income tax return for the taxable year, then the net income attributable to the excess contributions is included in the account beneficiarys gross income for the taxable year in which the distribution is received, but the excise tax is not imposed on the excess contribution and the distribution of the excess is not taxed.