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 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/ 2
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* * Per National Center for Health Statistics website http://www.cdc.gov/nchs/data/hus/hus07.pdf#027 3
Retiree health expenses skyrocketing • A couple retiring in 30 years may need nearly $500,000 1 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 payments 2 • Employees should use all potential saving tools – 401(k) plans, IRAs and Health Savings Accounts 1. Individual situations may vary. Source: Center for Retirement Research at Boston College 2. EBRI 4
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 5
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 6
Overview • 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 options and why ? 7
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 . 8
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. 9
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% 10
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 11
Four key areas to keep in mind on HSA’s • 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 12
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. 13
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). 14
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. 15
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 . 16
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 owned 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, 17 including eligible catch-up contributions.
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. *Subject to Code Section 213 deduction limits for long term care insurance premiums 18
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. 19
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. 20
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