Consumer Driven Health Plans and Health Savings Accounts Presented - - PowerPoint PPT Presentation

• St. Joseph School District

Consumer Driven Health Plans and Health Savings Accounts

Presented by: James V. Vigliaturo, Vice President, CBIZ Kristin Grace, Account Executive, CBIZ

Healthcare premiums continue to rise

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Between 2000 and 2011:

• Healthcare premiums

increased 134%1

• Inflation was only 32%2
• Healthcare costs increased

at more than four times the rate of inflation

1 Employer-sponsored family health coverage. Source: Kaiser Family Foundation (KFF) “Employer Health Benefits 2011” 2 http://www.usinflationcalculator.com/

Are healthcare costs in retirement the next big crisis? Increasing life expectancy

• A male living to age 65 is expected to live

another 17 years*

• A female living to age 65 is expected to live

another 20 years*

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* Per National Center for Health Statistics website http://www.cdc.gov/nchs/data/hus/hus07.pdf#027

Retiree health expenses skyrocketing

• A couple retiring in 30 years may need nearly $500,0001

for medical costs in retirement

• These figures don’t include over-the-counter

medications, dental, or long-term care

• Medicare does not cover long-term care or all medical

expenses – Medicare covers only about half of retiree health payments2

• Employees should use all potential saving tools – 401(k)

plans, IRAs and Health Savings Accounts

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1. Individual situations may vary. Source: Center for Retirement Research at Boston College 2. EBRI

Consumer Driven Health Plans

• Rapidly gaining popularity in the insurance

market place

• Lower premiums compared to traditional plans
• Put the employee in the driver’s seat with regard to

control of health care costs, provider selection, etc.

• Under an HSA, allows the employee to save for

future medical expenses on a tax favorable basis

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What Research Tells Us

• 15% of a plan’s members incur 85% of paid claims
• 5% of a plan’s members incur 45% of paid claims
• 85% of members use the plan sparingly

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• Key features of Consumer Driven Health Plans:
• Qualified High Deductible Health Plan (QHDHP)
• Health Savings Account (HSA)
• How the “qualified” HDHP and HSA work together
• Who is currently electing these types of health plan
• ptions and why?

Overview

High Deductible Health Plan (HDHP) Health Savings Account (HSA)

While many types of consumer driven health plans have high deductibles, it takes a certain set of features to make the HDHP “qualified” and be able to establish an HSA .

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How a QHDHP and HSA Work Together

• Typically an employee pays a lower premium rate for a QHDHP, compared

to traditional HMO or PPO plan options.

• When a medical expense occurs, the deductible must be met before the

plan pays for any expenses, such as physician office visits and prescription drugs.

• Preventive services are an exception as they are generally paid at 100%

with no deductible.

• Once the deductible is met, then standard co-insurance or copays could

apply.

• An out-of-pocket maximum provides a built-in cap on annual health care
• expenses. You know exactly what the maximum is that you may pay for in-

network Plan benefits.

• The District may still offer HMO/PPO options next to the QHDHP option.

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Sample QHDHP/HSA

(In-network benefits)

• Same network of providers, pharmacies and discounts as a PPO
• Sample Deductible - $2,600 (individual) / $5,200 (family) per

calendar year

• All services, except Preventive Care, are subject to deductible and

coinsurance

• Co-insurance – 100%
• Out-of-Pocket Maximum - $2,600 (individual) / $5,200 (family) per

calendar year – this includes the deductible

• Expanded Routine Preventive Services covered at 100%

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What is a Health Savings Account (HSA)?

An HSA is:

• A tax-exempt account
• Established for the purpose of paying qualified medical

expenses of the account owner and their eligible dependents

• The HSA is typically held by a bank or financial institution
• The account owner must be exclusively covered under a

“qualified” High Deductible Health plan to contribute to an HSA

• Triple Tax Savings: Pre-tax contributions, Tax-free

withdrawals, Tax-free growth

• No “use-it-or-lose-it” requirement; balance plus earnings

carries over year to year - tax free

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• You own the funds in your account
• You are not required to spend the funds
• Tax savings come from contributions made into the

account

• Dollars can be used to pay qualified medical expenses

for yourself or any of your spouse and tax dependents – even if your dependents are not covered under the District’s medical, dental or vision plans

Four key areas to keep in mind on HSA’s

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How an HSA Works

• Both the employee and the District may elect to put money into the
• HSA. The account balance rolls over from year to year.
• Once money goes into the account it belongs to the employee.
• You DO NOT pay taxes on contributions/earnings, as long as the

money is used for qualified health care expenses for you and your eligible dependents.

• If available, you may choose how contributions are invested.
• If you switch back to a traditional HMO/PPO, change jobs or retire,

you keep the account.

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In Order to Contribute to an HSA

• You MUST be enrolled in a “qualified” HDHP.
• You CANNOT be claimed as a dependent on

someone else’s tax return (You are NOT a dependent if you are

“married filing jointly” or “married filing single”).

• You CANNOT have any other medical insurance

coverage, other than what is specifically allowed (QHDHP).

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You CANNOT Contribute to an HSA IF…

• You are covered by another health insurance plan that is NOT a QHDHP,

such as coverage under a spouse’s non-QHDHP.

• You or your spouse are covered by a comprehensive health care Flexible

Spending Account (FSA) – one that is NOT for the purposes of “limited” vision and/or dental benefits, even if the FSA dollars are not used for you.

• You or your spouse are covered by a Health Reimbursement Arrangement.
• You have coverage under TRICARE, or are eligible for Medicare or

Medicaid. You can still have other disability, dental, vision, and long- term care insurance policies and a Dependent Day Care Account through an FSA.

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If Eligible to Contribute to an HSA, Is There a Limit to How Much I Can Contribute?

• The annual maximum contribution (Employer + Employee

contributions) is established by law and subject to change each calendar year. There is NO LIMIT to how much the account balance can grow over the years.

• 2016 Limit - $3,350 per individual and $6,750 per family.
• If you are between the ages of 55 and 65 and not enrolled in

Medicare, you may also be able to make “catch-up” contributions to the HSA each year of an additional $1,000 for you and/or your spouse.

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HSA Contributions

• Your own HSA contributions are either pre-tax (via

payroll deduction), OR tax deductible if contributed directly to the account.

• Contributions can come from pre-tax payroll deductions,

employer contributions, individual contributions, IRA transfer (one time), or transfer/rollover from another HSA

• wned by you (you cannot co-mingle spouse accounts)
• You can change your election at any time during the

year – start, stop, increase, decrease

• You have until April 15th of the following calendar

year to make HSA contributions for the prior year, including eligible catch-up contributions.

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HSA Disbursements

• Pay for qualified medical, dental and vision expenses
• Long term care premiums*
• Medicare premiums and out-of-pocket expenses

– Part A – Part B – Part C Medicare Advantage plans – Part D Prescription drug plans

• You cannot purchase Medigap plans or Medicare supplements
• You can only use your HSA to pay health insurance premiums if you

are collecting Federal or State unemployment benefits, or if you have COBRA continuation coverage through a former employer.

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*Subject to Code Section 213 deduction limits for long term care insurance premiums

HSA Disbursements

• HSA funds can be accessed via debit card swipe at the point of sale, debit

card number written on a bill, transfer money from HSA to checking/savings

• Receipts are not required to request a disbursement, but you must retain

all receipts in the event of an IRS Audit

• Disbursements for qualified medical expenses are NOT subject to taxation
• The money must be in your account before you can withdraw it
• Only expenses incurred after the account is open will be eligible for

reimbursement

• Disbursements for non-qualified expenses are subject to regular taxation

plus a 20% penalty. The 20% penalty is waived upon attainment of age 65.

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Who is currently electing these types of health plan options and why?

1) If your medical expenses are generally limited to preventive care, you should consider the QHDHP.

• If you have the financial resources to pay the deductible

under the QHDHP, you should consider it because the premium cost savings may outweigh the additional claim exposure.

• Under a “qualified” plan, you then have the ability to make

additional voluntary contributions to your HSA to save for future medical expenses on a tax favorable basis.

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Who is currently electing these types of health plan options and why?

2) If your in-network medical expenses would trigger the maximum out-of-pocket limit, you may want to consider the QHDHP.

• You may continue to pay out-of-pocket costs in your

traditional plan even after you hit your traditional plan’s maximum out-of-pocket limit.

• If you have the financial resources to pay the

deductible under the QHDHP, you should consider it because of the premium cost savings may outweigh the additional claim exposure.

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A number of public entities have implemented these types of plans

• City of Belton, Missouri
• City of Prairie Village, Kansas
• City of Liberty, Missouri
• City of Leawood, Kansas
• Clay County, Missouri
• City of Olathe, Kansas
• Belton School District
• Grain Valley R-5 School District
• Blue Springs School District
• Independence School District
• Raymore-Peculiar School District
• Center School District

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• Blue Valley School District
• Fort Osage School District
• Lathrop R-II School District
• Lee’s Summit School District
• Metropolitan Community Colleges
• Northwest Missouri State University
• Ottawa University
• Odessa School District
• Olathe School District
• Shawnee Mission School District
• Grandview School District
• City of Grain Valley, Missouri

FSA vs. HSA

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Flexible Spending Account Health Savings Account Who is eligible?

Employees enrolled in traditional plan or QHDHP Employees enrolled in QHDHP who have no

• ther non-QHDHP coverage

Contribution limits?

$2,500 annually $3,350 Individual / $6,750 Family annually

Who owns the account?

Employer Employee

Contributions

Employee through payroll deductions Employer/Employee/”Great Aunt Sally” through pre-tax payroll deductions, post-tax direct deposit, once in a lifetime IRA rollover

Contributions subject to tax? Interest?

Not subject to tax – cannot earn interest Not subject to tax – can earn interest and grow unlimited annually and year to year

Catch up contributions?

No Yes, $1,000 each year for employee or spouse 55 and over

Disbursements

Entire elected amount on first day of plan year Only funds currently in account

Portability and forfeiture

Employee loses unused funds at end of plan year Money will roll indefinitely from year to year

Eligible expenses

Qualified medical, dental, vision expenses for members of taxable family Qualified medical, dental, vision expenses for members of taxable family plus some premiums

Non-medical expenses?

No Under 65 – yes but 20% penalty and income tax Over 65 – yes with only income tax

Access to funds?

Debit card or paper claim form Debit card, ATM, transfer electronically between accounts

Proof of expenses paid?

Yes No; however, account holder should save receipts for up to 7 years in case of IRS audit

Changes to contributions mid-year?

Election made at open enrollment and changes allowed only for qualifying events such as marriage, birth, death, divorce Can increase, decrease, stop, start contributions

• n a monthly basis; can contribute for prior year

up to April 15th of year following

Questions? Thank you!