© 2012 employee benefits corporation 3 health savings accounts (hsas) the basics of hsas peter...
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© 2012 Employee Benefits Corporation
3© 2012 Employee Benefits Corporation
Health Savings Accounts (HSAs)
The Basics of HSAs
Peter AntonieCompliance Communications
SpecialistEmployee Benefits
CorporationThe material provided in this webinar is by Employee Benefits Corporation and is for general information purposes only. The information does not constitute legal advice and may not be relied upon by anyone as such. Nor may the information be disseminated in any form.
4© 2012 Employee Benefits Corporation
Today’s Agenda
• Origin/Overview of HSAs• Eligible individuals• High Deductible Health Plan
(HDHP)• Disqualifying coverage• HSA contributions• Participant HSA contribution
issues• Employer contributions to HSAs• HSA Distributions• HSAs compared to Health Care
FSAs and HRAs
5© 2012 Employee Benefits Corporation
Origin of HSAs
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
– Added new Code § 223 (created the HSA)
– An IRA-type of account for medical expenses
– Provided amendment to § 125 to allow HSAs in a cafeteria plan (exception for a benefit that provides deferred compensation)
6© 2012 Employee Benefits Corporation
HSA Overview
• Account established in the individual’s name - not the employer’s
• Owned by the account holder• HSA account must be with an IRS
approved trustee to hold HSA dollars– Banks– Investment companies
• Account balance is non-forfeitable, interest earned is tax free
• Portable with the individual – not tied to employer
7© 2012 Employee Benefits Corporation
Eligible Individual
Eligible to make or receive HSA contributions• Not another individual’s tax
dependent• Not entitled to (enrolled in)
Medicare• Covered by a qualified High
Deductible Health Plan (HDHP)
• Not covered by any disqualifying coverage
8© 2012 Employee Benefits Corporation
Eligible Individual
HDHP• All expenses, except preventive care, apply
to the deductible• Minimum annual deductible
$1,200 for single coverage and $2,400 for other than single coverage – limited family, family, etc. (2012);
$1,250/single and $2,500/family (2013)• Maximum out of pocket amounts under the
HDHP $6,050 for single and $12,100 for family
(deductible and coinsurance); $6,250/single and $12,500/family (2013)
• Amounts are indexed – can be adjusted annually January 1 each year New amounts are announced in June for
next year
9© 2012 Employee Benefits Corporation
Eligible Individual
No disqualifying coverage• Examples of disqualifying
coverageHRA that reimburses prior to
satisfying minimum HDHP deductible
Health Care FSA (own, spouse’s or parent’s - if under 26)
Health insurance that has first dollar coverage or a lower deductible than HDHP minimums
Prescription drug coverage prior to satisfying HDHP deductible (e.g., drugs covered after a co-pay)
10© 2012 Employee Benefits Corporation
Eligible Individual
Permitted coverageSpecified disease (e.g., cancer
ins.)Preventive careStand-alone dental and/or vision
coverageInsurance paying a fixed amount
per day for hospitalization
Workers’ compensation, tort liability or property insurance
Limited Health Care FSA or Post-deductible Health Care FSA
HRA designed to reimburse only after meeting at least minimum HDHP deductible amounts
11© 2012 Employee Benefits Corporation
Ineligible Individual ExampleBob and Betty are married. Both carry single health plan coverage through their employers. Bob has an HDHP and Betty has an HMO and Health Care FSA
Bob cannot contribute to an HSA because Bob is eligible for first dollar reimbursement from Betty’s Health Care FSA
If Betty participated in a Limited or Post Deductible Health Care FSA, Bob could contribute to an HSA
12© 2012 Employee Benefits Corporation
HSA Contributions
If employer offers pre-tax HSA contributions or makes employer contributions to HSAs, employer responsible to:
• Know that employee is covered by HDHP offered by the employer
• Know that the employee does not have disqualifying coverage offered by the employer
• Know whether the employee is eligible for “catch up” HSA contributions
13© 2012 Employee Benefits Corporation
HSA Contributions
• By individual or family member as tax deduction at year-end (post-tax)
• By individual as pre-tax deduction in cafeteria plan
• By employer (employer’s contribution reduces the maximum the individual can contribute)
14© 2012 Employee Benefits Corporation
HSA Contributions
HSA contribution limits• $3,100 for single coverage and
$6,250 for family coverage (2012) $3,250/single and $6,450/family (2013)
• Additional “catch up” contribution of $1,000 allowed for individuals 55 or older
• Joint limit applies to married individualsLimited to family maximum split
between the spouses if either or both have family HDHP coverage
Assume 50%/50% split unless agreed upon differently
15© 2012 Employee Benefits Corporation
HSA Contributions
Annual maximum contribution is the sum of the monthly contribution limits (annual/12) for the months the individual was eligible to make contributions• e.g., 2012 single maximum of
$3,100 equates to $258.33 per month
• Full Contribution rule* for mid-year HDHP enrollees or coverage change allowed
* also referred to as the last-month rule
16© 2012 Employee Benefits Corporation
HSA Contributions
Full Contribution rule• Must be HSA eligible December 1• 13-month testing period applies• Contribution maximum is the greater of
The annual maximum for coverage in effect December 1, or
The sum of the monthly maximums for the HDHP coverage that was actually in effect for each month of the year
17© 2012 Employee Benefits Corporation
HSA Contributions
Full Contribution rule• 13 month testing period applies• Individual must remain HSA eligible
from December 1 of the year the full contribution rule is used until the end of December of the following year
• If not, any additional contributions (those in excess of the sum of the monthly maximums) are treated as taxable income plus additional 10% tax
18© 2012 Employee Benefits Corporation
HSA Contributions
Full Contribution example #1• John enrolled in family HDHP coverage
October 1 (no HDHP coverage prior) and uses the full-contribution rule
• John’s monthly maximum sum is $1,562 ($6,250/12 months X 3 months)
• John makes the full $6,250 contribution• John’s additional contributions are
$4,688• John must remain HSA eligible until
December 31 of the following year• If not, he is taxed on the additional
contributions of $4,688 plus an additional tax of $468.80
19© 2012 Employee Benefits Corporation
HSA Contributions
Full Contribution example #2• Mary was enrolled in single HDHP
coverage from January through August (8 months)
• Mary enrolled in family HDHP September 1
• The sum of her monthly maximums is $4,155.01 ($3,100/12 mo x 8 mo) + ($6,250/12 mo x 4 mo)
• Family HDHP contribution maximum is $6,250
• Mary contributes $6,250 using the full contribution rule
• Mary’s additional contributions = $2,094.99 (subject to taxation if she doesn’t remain HSA eligible through the testing period)
20© 2012 Employee Benefits Corporation
HSA Contributions
Roll over from Health Care FSA or HRA
• No longer available• Roll over must have been completed
by December 31, 2011• Participant must have been a
participant in the employer’s Health Care FSA or HRA on September 26, 2006
• Could roll over the lesser of balance on 9/26/06 or the end of current plan year
• Participant must remain HSA eligible during the 13-month testing period
21© 2012 Employee Benefits Corporation
HDHP & HSA Limits** minimum = deductible, maximum =
out-of-pocket • 2012 min/max– Single
$1,200/$6,050– Family
$2,400/$12,100• 2012
contribution limit– Single $3,100– Family $6,250
• 2013 min/max– Single
$1,250/$6,250– Family
$2,500/$12,500• 2013
contribution limit– Single $3,250– Family $6,450
22© 2012 Employee Benefits Corporation
Participant HSA contribution issuesScenarios assume the participant’s
employer has HDHP with HSA• Spouse’s employer implements non-
HDHP • Spouse takes job with employer that
has non-HDHP coverage
• Spouse takes job with employer that has HDHP with HSA coverage
• Participant marries• Participant’s spouse loses job and HDHP
with HSA coverage• Participant’s spouse loses job and non-
HDHP coverage
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Spouse’s employer implements non-HDHP• Participant drops health plan and
enrolls on spouse’s non-HDHP Participant cannot make future HSA
contributions• Participant switches to single health
plan, spouse enrolls in single non-HDHP Participant can make future single plan
HSA contributions, unless spouse elects a Health Care FSA
• Participant remains in family coverage, spouse does not enroll in non-HDHP coverage Participant can continue family HSA
contributions, assuming spouse does not elect a Health Care FSA
24© 2012 Employee Benefits Corporation
Spouse takes job with employer that has non-HDHP coverage• Participant continues family
HDHP coverage and spouse does not enrollParticipant continues family HSA
contributions, assuming spouse does not elect Health Care FSA
• Participant switches to single HDHP coverage and spouse enrolls in single non-HDHPParticipant limited to single HSA
contributions for remainder of tax year, assuming spouse does not elect Health Care FSA
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Spouse takes job with employer that has non-HDHP coverage (continued)• Participant switches to single or
drops plan and spouse enrolls in family non-HDHP Participant ineligible for future
HSA contributions
26© 2012 Employee Benefits Corporation
Spouse takes job with employer that has HDHP with HSA• Spouse enrolls in family HDHP,
participant drops his/her employer’s health plan Participant continues to make family HSA
contributions (spouse makes none), or Spouse establishes account and makes
family contributions (participant makes none), or
Spouses split the future family HSA contributions
• Participant continues in family coverage Spouse can enroll in single or family
coverage. Participant continues to make his/her own family HSA contributions (spouse makes no contributions), or
Participant splits family contributions with spouse
27© 2012 Employee Benefits Corporation
Spouse takes job with employer that has HDHP with HSA (continued)• Participant switches to single health
plan, spouse enrolls in single HDHP Participant's future HSA contributions
reduce to single amount for remainder of tax year. Spouse can make single HSA contributions for remainder of tax year
• Participant switches to single health plan, spouse enrolls in family HDHP Participant and spouse can split family
HSA contribution amount, or Participant can stop making
contributions and spouse makes family contributions for remainder of tax year
28© 2012 Employee Benefits Corporation
Participant marries
• Participant drops his/her employer’s health plan and enrolls on spouse’s planIf spouse’s plan is HDHP,
participant can make family HSA contributions or split family contribution with spouse for remainder of tax year, assuming spouse has no Health Care FSA
• Participant and spouse keep single health plans with their employersParticipant limited to single
amount for HSA contributions unless spouse has a Health Care FSA, then no future HSA contributions allowed
29© 2012 Employee Benefits Corporation
Participant marries (continued)
• Spouse drops his/her coverage. Participant enrolls in family HDHPParticipant eligible for family HSA
contributions for remainder of tax year (limit can be split between spouses or all contributed by one spouse), unless spouse has Health Care FSA
30© 2012 Employee Benefits Corporation
Participant’s spouse loses job and had HDHP with HSA coverage• Participant can enroll in
employer’s health planParticipant or spouse can make
family HSA contributions or split the limit
Contributions can be into the spouse’s account or participant can establish new HSA account
31© 2012 Employee Benefits Corporation
Participant’s spouse loses job and non- HDHP coverage• Spouse and participant do not
elect COBRA, participant can enroll in family HDHP coverage and make family HSA contributions for remainder of tax year (participant alone or split with spouse)
• Spouse elects COBRA for single plan, participant enrolls in single HDHP and can make single HSA contributions for remainder of tax year, unless spouse elected COBRA for Health Care FSA
32© 2012 Employee Benefits Corporation
HSA Contributions
Pre-tax vs. Post-tax• Pre-tax through cafeteria plan
Immediate tax savings Automatic contributions Could affect future Social Security
Benefit Employer and employee contributions
subject to IRC §125 nondiscrimination testing
• Post-tax outside cafeteria plan Line item adjustment at year-end No effect on future Social Security
benefit Any employer contribution subject to
Comparability rules of §223 No effect on §125 nondiscrimination
testing
33© 2012 Employee Benefits Corporation
Employer HSA contributions• Through a cafeteria plan
If employees can make pre-tax contributions, employer contributions are considered made through the cafeteria plan (Treasury Reg. §54.4980G-5)
Employer contributions and any employee pre-tax contributions are subject to IRC §125 nondiscrimination testing
• Outside a cafeteria plan Subject to Comparability rules of § 223 Comparable contributions for comparable
participating employees (e.g., same dollar amount for all enrolled in single plan coverage, % of HDHP deductible, etc.)
Cannot be based on age, years of service or compensation
34© 2012 Employee Benefits Corporation
HSA Contributions through Cafeteria Plan§125 Nondiscrimination Testing• HSA contributions (employer &
employee) treated as premiums• HSAs are taken into account when
performing the § 125 Contributions & Benefits test* and Key Employee 25% Concentration test
• Failing either or both tests means the HCEs or Key employees are taxed on all their pre-tax benefits (premium share, FSAs and pre-tax HSAs)
*If employer HSA contributions are not comparable, the C&B Availability test fails if HCEs receive a higher amount
35© 2012 Employee Benefits Corporation
HSA Distributions
• Distributions are tax free for qualified medical expenses incurred after HSA is established non-medical distribution is taxed plus
additional 20% penalty
• Distributions act as reimbursement of medical expenses to the account holder
• Generally for medical expenses of account holder, spouse or tax dependents (eligible child rule to age 26 does not apply)
• Qualified medical expenses the same as for a Health Care FSA (IRC § 213(d)) with exception for some premiums
36© 2012 Employee Benefits Corporation
HSA Distributions
Premiums eligible from HSA• Qualified long term care insurance
(LTC)• COBRA or USERRA leave premiums• Any health plan premiums during
period receiving unemployment compensation
• If over 65, account holder’s health coverage other than Medicare supplement (e.g., premiums for retiree coverage, Medicare Part B or D or Medicare Advantage, etc.)
37© 2012 Employee Benefits Corporation
Health Care FSA vs HRA vs HSA
Feature Health Care FSA EBC HRA HSA
Contributions
Employer and
employeeEmployer
Employer and
employee
Maximum Contribution
Set by employer
Set by employer
Indexed annually
Tax status of ER
contributions
Excludable from EE income
Same Same
Portability None None Individual account
HDHP Not required Not required Required
Non-Medical expenses Not allowed Not allowed
Subject to 20% penalty
+ tax
38© 2012 Employee Benefits Corporation
Health Care FSA vs HRA vs HSA(continued)
Feature Health Care FSA EBC HRA HSA
Coverage Period 12 months Plan
determinesDoes not
apply
Uniform coverage
ruleApplies Does not
applyDoes not
apply
Substantiation
requirements
Plan must substantiate
Plan must substantiate
Individual substantiatio
n
Reimbursement order
FSA pays last unless HRA document over rides
HRA pays first unless
HRA document stipulates
FSA
Cannot have FSA or HRA cover same expenses
39© 2012 Employee Benefits Corporation
Questions?
• Any questions can be addressed by e-mail or phone at your convenience
Compliance Department800 346 [email protected]
• Thanks for Attending!!
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