The content provided in this presentation is for informational purposes only. For information regarding specific policy information, including regulations, limitations and exclusions, refer to your contract and/or benefit booklet.

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CDHP Health Savings Accounts

• Your Guide to Understanding How HSAs Work

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CDHPs More than just Health Plans
Start with a high deductible health plan that
delivers an array of choices and high-performing
providers
Add a health savings account and investment
services, to help employees pay for medical
expenses, save, and invest
Preventive quality care programs are the key
to making CDHPs and HSAs work and empowers
consumers to make more informed decisions on
their health

Health Plans Providers
Health Savings Account

Care Service Programs
These simple steps serve as the framework
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HSA Quick Facts
Description Tax exempt trust or custodial account established for the purpose of paying qualified medical expenses (QME) in conjunction with a IRS defined High Deductible Health Plan.
Program Sponsor Individuals Employers
Health Plan Requirements IRS qualified HDHP required
Account Type Employee trust or custodial
Contributions Employers and / or individuals, up to IRS limits. Contributions and investment earnings are tax-free
Distributions Tax exempt for QMEs. Taxable 10 penalty for all other withdrawals.
Rollover/Portability Yes
Validate Expenses Individuals responsibility
Administration Provided by a qualified financial institution
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Health Savings Account Details

• Build funds with tax breaks
• Similar to Individual Retirement Account (IRA)
• Money contributed used to build savings for
  future medical costs
• Account deposits and interest earnings receive
  tax-favored treatment
• Money contributed to HSA can be withdrawn
  tax-free to pay for qualified medical expenses
  (QME)
• Move it, keep it!
• Completely portable, even if employees move
• Funds rollover from year to year
• Calculating contributions
• Deposit either health plan deductible amount or
  amount specified annually by IRSwhichever is less

• Peace of Mind
• Accumulated money for health expenses
• Pay insurance premiums (I.e., long-term care,
  COBRA, or health premiums while unemployed)
• Retirement at age 65
• Pay for Medicare or employees share of any
  medical insurance premiums

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HSAs - Benefits to Employers

• Health plans cost less helping employers avoid
  health insurance premium increases
• Spending less on health care coverage cuts
  overhead, taxes and administration
• Cost of insurance premium and any contribution to
  employees HSAs are tax-deductible
• Attract and retain valuable employees
• An opportunity to invest when coupled with
  financial accounts
• Valuable for spenders, savers and investors

• CDHPs Add up the
  individual advantages
• Combining a CDHP with an
• HSA offers
• Flexibility
• Control over rising cost of benefits
• Lower health care premiums
• Tax-saving advantages

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What is an HSA?

• Tax-exempt trust/savings vehicle
• Triple Tax Free Benefit
• Tax savings on the account up to the deductible
• Interest on the account
• Earnings on the investment
• Employer and/or employee cash contributions
• Belongs to individual not employer

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Who is eligible?

• Open to everyone enrolled in a qualified
  high-deductible health plan
• Individuals cannot be covered under another
  health plan that is not a qualified
  high-deductible plan
• Individuals must not be eligible and enrolled in
  Medicare
• Individuals must not be eligible to be claimed as
  a dependent on another persons tax return

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High Deductible Health Plan Design

• Premiums generally costs less than what
  traditional health care coverage cost
• Deductibles are higher than traditional coverage
• IRS has defined HDHP requirements
• Embedded or aggregate deductibles are allowed
• Preventive care services may be covered on a
  first dollar basis including Rx
• Copays are not allowed, unless for preventive
  care services
• Prescription drugs must be covered under the
  medical plan, not under a separate plan (e.g. no
  co-pay plans)

2009 Deductibles 1,250 Self-only Coverage 2,500
Family Coverage Annual Out-of-Pocket 5,000
Self-only Coverage 10,000 Family Coverage
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Contributions to an HSA

• Contributions must be made in dollars
• Account holder must be enrolled in a qualified
  CDHP to contribute
• Employer, employee and family member of employee
  can contribute
• Account holder may no longer contribute once they
  become entitled to Medicare
• Maximum yearly contributions in 2009
• lesser of the deductible or 3,000 for individual
  or 5,950 for family
• Contributions may be made any time of year in one
  or more payments
• Individuals age 55 and older can make an
  additional catch-up contribution of 1,000 in
  2009

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HSAs Contribution Schedule
Maximum HSA Deposit Maximum HSA Deposit Deductible
2009 2009
Self-only Coverage 3,000 1,250
Family Coverage 5,950 2,500

2009
Catch-up Provision (for aged 55) 1,000
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Tax Treatment of Contributions

• Employer Contributions
• not taxable income to employee and not subject to
  FICA
• not tax deductible by the individual
• tax deductible to the employer up to certain
  limits in the year in which the contribution is
  made
• Employee/Family Member Contributions
• tax deductible by the eligible individual on an
  above-the-line basis
• cannot take a deduction on tax return for medical
  expenses if the expenses were reimbursed under an
  HSA
• interest and investment earnings on contributions
  are not taxable while in the HSA

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Features of HSAs

• Members personal HSA contributions are
  tax-deductible
• Interest earned on your account is tax-free
• Withdrawals for qualified medical expenses are
  tax free
• Unused funds and interest are carried over,
  without limit, from year to year
• Members own the HSA and it is theirs to keep
  even when they change plans or retire
• Accumulated funds in the account can be invested
  in stocks and bonds.

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HSA Advantages
Security Affordability Flexibility Savings Control
Portability Ownership Tax Savings

• HSAs may save a member money through lower
  premiums, tax savings. Plus, the money deposited
  in an account can be used now or in future years!

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Qualified Medical Expenses

• The most common allowable health care expenses
  are.

Coinsurance and deductible amounts Prescriptions Braces LASIK eye surgery Dental Care Contact lenses Hearing aids Long-term care premiums Over-the-counter drugs Medicare premiums COBRA premiums
And much more!!!
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HSA Savings Scenario

• Conservatively, if member saves 1,500 each year
  starting at age 35
• Assuming they still spend 500 in health care
  each year under a 2,000 total deductible
• After 30 years, member would have 185,019 in
  HSA!
• Assumes member took advantage of investment
  options and received average 8 return
• Does not include 30 years of premium savings!

185,019 at age 65
1,500 each year starting at age 35
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Distributions from an HSA

• Only funds available (deposited) in the account
  may be used
• Funds the HSA can still be used for qualified
  medical expenses, even if a person is no longer
  enrolled in a qualified high-deductible health
  plan
• Amounts distributed, which are not used to pay
  for qualified medical expenses, are subject to
  income taxes and an additional 10 excise tax
• Account holder is responsible in for ensuring
  that expenses paid from the account are qualified
  medical expenses Banks or the Health Plan does
  not substantiate in any way
• Balances remaining in an HSA at the end of a year
  roll to the next year
• Beneficiary rules apply upon death

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Pros and Cons

• Lower premiums
• Tax deductible contributions
• Portability of account
• Account balance rolls over annually
• Earnings grow tax free
• Withdrawals for healthcare expenses incur no tax
• Wide range of investment options
• Employer can contribute to premiums

• Higher deductibles
• May pay more for routine expenses and
  prescriptions
• May not be suited for those with chronic
  conditions
• Non-medical use withdrawals for people under 65
  will be taxed and assessed a 10 penalty
• Some accounts incur extra fees
• Cant use funds to cover premiums
• Must continue health plan enrollment in order to
  make account contributions.

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Legislation changes that improve HSA

• Eliminates lesser of the deductible allows the
  full amount of the contribution limit without
  regard to the individuals deductible amount
• Allows full year contributions for those who
  enroll mid year
• Allows a one time tax fee rollover of health FSA
  or HRA
• Allows a one time tax free trustee to trustee
  transfer of IRA funds
• Allows the employer to contribute greater
  contributions for non highly compensated
  employees without violating comparability rules

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How to Decide?

• Only you can determine if a high deductible
  health plan and health savings account is right
  for your or your employees.
• Know the facts to make the best decision.
• Questions?