Savings Account Basics - February 24, 2021
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Savings Account Basics
February 24, 2021
Agenda • What is a High Deductible Health Plan? • What is a Health Savings Account (HSA)? • HSA Eligibility Rules • Flexible Spending Accounts & HSAs • HSA Contribution Requirements • HSA Tax Implications • Qualified Medical Expenses • Retirement/Investment Opportunities • Beneficiary • Tools & Resources
High Deductible Health Plans (HDHPs)
What is a Qualified High Deductible
Health Plan (HDHP)?
• A Qualifying HDHP is a medical plan with annual
deductibles and out-of-pocket limits that comply
with IRS requirements
• The IRS adjusts these requirements every year
• 2021 Limits
– Deductible cannot be lower than $1400
single/$2800 family
– Out-of-Pocket Maximums cannot be higher than
$7,000 single/$14,000 family
What is a Qualified High Deductible
Health Plan (HDHP)?
• HDHPs cannot pay benefits until the plan’s
deductible is met for the plan year
• Exception: Preventive Care
• No office visit copays, prescription copays or
telemedicine copays permitted until the
deductible is satisfied
Why do you need to have a
Qualified HDHP?
• The IRS only allows pre-tax deposits into a
Health Savings Account if you are enrolled in
a Qualified High Deductible Health Plan
• CMU offers a HDHP through BCBS and
MESSA – both are qualified HDHPs
Health Savings Accounts
What is a Health Savings Account (HSA)? • By enrolling in a HDHP, you are eligible to contribute tax-free money into a HSA • Account is fully owned by the employee • Bank account is automatically set up with Health Equity when enrolled in CMU Qualified HDHP
HSA Advantages • HSA deposits earn interest • Once the HSA balance exceeds $2,000 investment options are available • Like a 401(k), money “grows” over time • No use it or lose it rule – HSAs are designed to follow you into retirement • You own it. You control it.
HSA Responsibility
• Employee shoulders most of the
responsibility related to HSAs
– Must be covered by a QHDHP
– Understand if eligible
– Verify using funds for qualified medical expenses
– Take additional steps at tax-filing time to report
contributions/distributions
– Maintain documentation of everything in case
auditedHealth Savings Account Eligibility Rules
HSA Eligibility Provisions HSA Account Holders CANNOT contribute to a HSA: • If enrolled in Medicare (Any part: A,B,D or Medicare Advantage) • If enrolled in TriCare • If you or your spouse is enrolled in a General Purpose Health FSA (Limited Purpose FSA is allowed) • If enrolled in other health insurance that is not subject to the HDHP requirements (i.e. a spouse’s traditional plan or non-HDHP medical plan). Except for “excepted” or “permitted” insurance • If claimed as a dependent on someone else’s tax return (other than your spouse) • If received Veteran Affair benefits during the past 3 months
Health Flexible Spending Accounts
(FSAs) & HSAsHealthcare Flexible Spending Accounts
(FSAs)
• Two Types of Healthcare FSAs
– General Purpose Health FSA
– Limited Purpose Health FSA
• Plan Year: July 1 through June 30
• Allow pre-tax dollars to be contributed to a
health care FSA to be used by you or
qualified dependentsFlexible Spending Accounts • Minimum Amount: $100 annually • Maximum Amount: $2,750 annually • Elected Amount is equally divided into your pay periods • Full amount available on your effective date • Changes are only allowed if a qualifying life status event • “Use-it or Lose-It” Account (except for rollover)
Flexible Spending Accounts - Rollover
• Funds over $550 at the end of the plan year
are forfeited per IRS Regulations
– Carryover of $550 is allowed into the next plan
year for active employees
– Terminated or retired employees
• Claims must be received within 90 days following the
end of employment
• If COBRA is elected, claims must be incurred prior to
the end of employment dateFlexible Spending Account Eligibility
• Dependents include
– Legal Spouses
– Children to the end of the calendar year in which
they turn 26, if the child is a tax dependentGeneral Purpose FSA
• General Purpose Health FSA should be
paired with the CMU BCBS PPO Health Plans
or the MESSA Choices Health Plans
– Qualified Expenses include
• Medical and prescription deductibles, coinsurance or
copays
• Dental expenses
• Vision expensesLimited Purpose FSA
• Limited Purpose Health FSA should be
paired with the CMU HDHP only
– Qualified Expenses include
• Dental expenses, including orthodontia
• Vision expensesFlexible Spending Accounts (FSA)
Impact on HSAs
• General Purpose Health FSAs that cover all
medical, dental and vision expenses may
make you ineligible for an HSA
– If $0 balance at the end of the plan year (6/30) -
no effect on HSA eligibility
– If $550 carryover into a General Purpose FSA, it
will make the individual ineligible for the entire
year; must transfer to a Limited Purpose FSAFlexible Spending Accounts (FSA)
Impact on HSAs
• Limited Purpose Health FSA is allowed with a
HSA
– Coverage is limited to dental, vision or orthodontia
care
– General Purpose FSA unspent carryover monies can
be used during a 90 day run-out period (90 days
following end of plan year), for medical, dental or
vision expenses prior to end of the previous benefit
year. After the run-out period, any unspent carry
over funds will be applied to a Limited Purpose FSAChoosing the HSA
If electing a CMU HDHP and you want an
HSA, must elect in same tab!Choosing the HSA • Each year during OE, you must enter your HSA contribution amount – this is not automatic • If you miss the election during OE, paper form available
Choosing the Right FSA
• Make sure you • Plan Type drop down choices:
General Purpose or Limited
choose the right FSA Purpose Health Care FSA
• FSA election is binding for
entire plan year, unless
benefits status change event.
• You can not remove or change
FSA election type and
contribution after enrollment.
• IMPORTANT: Make sure your
Health plan election and FSA
election are compatible.Health Savings Account Contribution Requirements
HSA Contribution Limits
• The IRS sets annual contribution limits
• Limits are pro-rated if not covered for a full
year
• 2021 (calendar limits)
– $3,600 for self-only
– $7,200 for family
– $1,000 Catch-up contribution allowed for
employees age 55+HSA Contribution Rules • Contributions that exceed the maximum permitted are not deductible • An excise tax of 6% is imposed on accountholders for excess contribution limits • Individuals can withdraw excess contributions before end of tax year to avoid a penalty
HSA Contribution Rules
• Employees and Spouses that are both
covered under separate HDHPs (family
coverage) and have separate HSAs:
– One family limit applies per tax family
– Employee and Spouse can each contribute into
their own HSA but combined contributions
cannot exceed the family maximum of $7,200Who can Contribute into the HSA?
• Employees
– Pre-tax contributions to their HSA each payday
– after-tax contributions directly to their HSA
account during the year – deductible at tax time
• Employers can also make tax-free
contributions directly to the employee’s HSAAffects on HSA Contributions Eligibility to contribute based on accountholder status only: • Spouse/dependent child(ren) can have other comprehensive coverage and it does not affect accountholder eligibility to contribute • Spouse/dependent child(ren) can have Medicare and it will not affect ability to contribute
Health Savings Account Tax Implications
HSA Tax Savings
HSA Tax Reporting
• Since the HSA is a tax-advantaged account, the IRS
requires reporting on how you use the account on your
income tax return using Form 8889.
• Health Equity provides 2 tax statements each year 1099-
SA and 5498-SA
– Form 1099-SA: Reports distributions from your account. You
are not required to include the amounts as income unless
they were used for non-qualified expenses. The form is
mailed to you by the end of January each year and is needed
to file your tax return.
– Form 5498-SA: Reports contributions and rollovers to your
account. This form is also delivered by the end of January
each year and is NOT needed to file your taxes. The form is
updated and available in the member portal in May each year.HSA Tax Reporting • Form 8889 – your tax preparer will use your 1099-SA, W-2 and other documents to complete and submit your IRS Form 8889 with your annual tax return. Form 8889 is used to calculate your HSA deduction amount and report distributions.
Qualified Medical Expenses
Expenses must be for Qualified
Individuals
• Expenses for accountholder, legal spouse, and tax dependent
children (even if not enrolled in HDHP)
• Dependent child definition different than required coverage
definition under ACA
– Under ACA, offer coverage to dependent children up to age 26
– Tax dependent under HSAs (Section 152 definition-post-WFTRA)
• Qualifying child or qualifying relative
• For children, age requirements, same principal place of residence
requirement and dependents do not provide over half their support
• A dependent child can be covered under HDHP but expenses
may not be tax-favored reimbursements for parent’s HSA
• If not a tax dependent of parent, child can set up HSAQualified/Non-Qualified
Medical Expenses
Qualified Non- Qualified
Medical Expenses Medical Expenses
(see IRS publication 502)
• Dancing lessons
– Medical expenses
• Elective cosmetic surgery
– Contact lenses
• Hair removal
– Dental/Orthodontia care
• Teeth whitening
– Eyeglasses and eye surgery
• Health club fees
– Long-term care expenses
• Medicines and drugs from
– Prescription medicines
other countriesNon-Qualified Distributions or Expenses
• Included in gross income and taxable
• 20% excise penalty applies in many cases for non-qualified expenses
• Excise penalty does not apply:
– Over age 65
– Distributions following an accountholder’s death
• Accountholder required to name a beneficiary in the event of
death
• If legal spouse is beneficiary, the ownership of the account is
transferred to the spouse and the spouse can continue to use
the account for eligible services
• If not legal spouse, account funds distributed & becomes
taxable income to beneficiary
– Distributions made if account owner disabledRetirement/Investment Opportunities • Once your account balance reaches $2,000 you can increase your earning potential by investing any funds over that amount in mutual funds • You can manage your investments on your own or let Health Equity Advisor do all of the work. Advisor, for a fee, can provide web-based guidance designed to diversify your portfolio and can manage the trading of mutual funds for you. For more information contact healthequity.com/Advisor.
Compare HSA to 401K
HSA 401(k)
Assets Investable Investable
Contributions Not taxed FICA taxed (7.65%)
Earnings Not Taxed Not taxed
Distribution for Not taxed Taxed (as ordinary
qualified medical income)
expenses
Maximize your savings:
2021 contribution limits are $3,600 individual and $7,200 for families.
Members age 55+ can contribute an additional $1,000.Medicare Enrollment Affect
• You cannot contribute into a HSA if you are enrolled
in Medicare
– Electing Social Security (SS) Retirement Benefits
automatically enrolls you in Medicare Part A & B
– To continue contributing into a HSA, you cannot begin
receiving SS payments
– Your HSA contribution maximum must be prorated based
on the number of months you were covered by the HDHP
and NOT covered by Medicare Part A or B.
• Your HSA money is yours to use, even after you stop
contributing.What happens to my HSA when I retire? • HSA is a bank account owned by you • No action required; Health Equity will mail you a letter explaining you have an individually owned account • You will begin paying a minimal monthly administration fee
Beneficiary/Account Holder Death
• Important to designate a beneficiary
– To update/add beneficiary; contact Customer
Service or go online to www.heathequity.com
– If no beneficiary listed, legal spouse
– If no beneficiary and no legal spouse, must provide
proof (executor, personal representative or successor of decedent’s
estate)
• Upon account holder’s death; Form to complete
– Legal Spouse: HSA account can be paid out or
transferred to an individually owned account
– Other beneficiary: Account balance paid outNeed Help?
Health Equity Tools & Resources
• CMU HR Benefits & Wellness Portal – Click on Health Savings Accounts
• Member Portal at www.healthequity.com
• Media Library (videos)/Webinars
• Documents/Forms
• HSA Contribution Calendar
• Mobile App
– On-the-go access and history
– Photo documentation
– Send payments & reimbursements
– Manage debit card transactions
– Initiate claims and view statusHealth Equity Contact Information • Customer Service Phone Number – BCBS Members: (877) 284-9840 – MESSA Members: (877) 218-3432 • Email online at the help center
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