Health Savings Accounts 2019

Transcription

1 Your Guide to Health Savings Accounts Savings now.

2 Your Guide to Health Savings Accounts Table of Contents Introduction to Health Savings Accounts (HSA s)... 3 What is a High Deductible Health Plan (HDHP)?... 4 Opening a Health Savings Account... 5 Details of an HSA... 6 Allowable Expenditures from Your HSA... 7 Ineligible Expenditures from Your HSA... 8 Frequently Asked Questions about HSA s

3 Introduction to Health Savings Accounts (HSA s) A Health Savings Account (HSA) is like a 401(k) for healthcare. It is a tax-advantaged personal savings or investment account that individuals can use to save and pay for qualified healthcare expenses, now or in the future. Paired with a qualified high deductible health plan (HDHP), an HSA is a powerful financial tool that empowers consumers to be more actively involved in their healthcare decisions. However, unlike other financial savings vehicles (Roth IRA, Traditional IRA, 401K, etc.), an HSA has the unique potential to offer triple tax savings through: Pre-tax or tax deductible contributions to the HSA Tax-free interest or investment earnings Tax-free distributions, when used for qualified medical expenses Contributions can be made by the employer, the employee/individual, or both. Tax-free withdrawals can be made to pay for qualified healthcare expenses incurred by the accountholder, spouse, children and other dependents. HSAs are also portable, which means that individuals keep their HSAs, if changing jobs or becoming unemployed. Also, since the account is owned by the individual, there is no use-it-or-lose-it provision, like with a Flexible Spending Account (FSA). Instead, unused contributions roll over each year, with interest and/or investment earnings compounding on a tax-free basis, like an IRA or 401(k). HSAs offer the potential for long-term, tax-free savings that can be used for future healthcare expenses, such as Medicare premiums and certain long-term care expenses and insurance. Any adult who is not already enrolled in Medicare and is covered by a qualified HDHP (and is not enrolled in another plan that is not considered a qualified HDHP) may establish a HSA. There are no income limitations. With a HSA, you can either pay the provider out of your HSA account or reimburse yourself from the account. Just save receipts for your tax records. The money in the account is yours to invest, and grows tax free until you withdraw it. Even if a HSA qualified plan no longer covers you, your account remains active and you can use the remaining balance for medical expenses, you just can t make deposits. 3

4 What is a High Deductible Health Plan (HDHP)? A High Deductible Health Plan, or HDHP, is a health insurance plan with specific rules for coverage set by the IRS. A qualifying HDHP has a minimum annual deductible and out-of pocket maximums for individuals and families, and a combined medical and pharmacy deductible. There are two ways a family deductible and out-of-pocket can be administered and still be considered a qualified HDHP, both with different thresholds. Non-Embedded Deductible If you elect family coverage under a non-embedded deductible plan, there is no individual deductible and generally no individual out-of pocket maximum. The family accumulates deductible and out-of-pocket expenses together as a group until the family thresholds are met. If the family out of pocket maximum is higher than IRS stated $6,750 self only coverage limit, then each individual in the family is capped at $6,750 outof-pocket maximum. Minimum Deductible for 2019: Self-only coverage =$1,350 Family Coverage =$2,700 Example: The family deductible is $3,000 and the out of pocket is $6,750. for thei ndividual and $13,500 for the family; If one person has a $2,000 claim, they would be responsible for the full $2,000. If another member of the family then has $1,000 in claims, the entire family is considered to have met the family deductible and would then move into 90%/10% coinsurance coverage and copays until the family out-of-pocket is reached. Conversely, if one member of the family has $40,000 in claims, they can satisfy the full family deductible and out-of-pocket maximum for the entire family.) Embedded Deductible Maximum Out-of-Pocket Limit for 2019: Self-only coverage =$6,750 Family Coverage =$13,500 Embedded deductible plans have separate individual deductibles and out of pocket maximums embedded into the family thresholds. This means that the accumulations for both medical and prescription expenses are based on each individual member, not to exceed the family thresholds. When a member s individual deductible is met, the plan begins to pay at the coinsurance level for that member until the out of pocket maximum is reached. When the entire family deductible has been met, the plan will pay at the coinsurance level for all family members (even if one or more members have not met their individual accumulators). Embedded Deductible Example: The deductible is $4,000 Single/ $8,000 Family and the out of pocket is $6,750 Single /$13,500 family with 80% coinsurance. If one member in the family has a $5,000 claim, that member would satisfy their individual deductible of $4,000 and claims would be paid at 80% for them until they reached a total of $6,750. If another member of the family has a $5,000 claim, the family would satisfy the family deductible and claims would be paid at 80% for the remainder of the family until either that individual reaches their single out of pocket maximum of $6,350 or the combined family reaches $13,500. Prescription Drugs under a HDHP Another key component of HDHP is the way prescription drugs are paid. Under a HDHP, all medical and prescription drugs apply directly to the deductible. Under a non-hdhp, the prescription drug benefits are separate from the medical deductible. Therefore under a HDHP, the first time you receive a prescription drug you will pay 100% of the discounted cost until your medical deductible is fulfilled. 4

5 Opening a Health Savings Account I asked my bank about opening an HSA. They said they had heard of those and I could do the same thing with a normal savings account is that correct? No. Find a different financial institution that knows how an HSA works so that you are confident you ll receive proper tax reporting documents. Also, check with your HR Department as your employer may select a bank to work with through payroll deduction and may not give members the option to use their own bank. How do I open an HSA and will it cost me a fee? HSAs are being marketed by many financial institutions. An HSA can always be moved at a later point in time if you find a better alternative in the future. Fees will vary by institution and earnings will typically vary based on the balance in the account. Your account needs to be opened before you incur expenses that you will want to withdraw for reimbursement. If you incur charges that exceed the current balance in the account, additional funds can be added during the year. Are there any special IRS rules I should be aware of when setting up an HSA? Of course. The government never allows for tax reductions without some strings attached. In order to establish and contribute to an HSA, you must participate in an HSA Qualified Plan, known as an HDHP. To be defined as an HDHP: o The minimum deductible level (adjusted annually) must be $1,350 for a single and $2,700 for a family. o If you elect the employee + 1 or family option, other than preventive health care, all expenses incurred by any member(s) of your family must reach the minimum $2,650 in-network deductible level before the plan begins to pay. These thresholds can be treated differently in an embedded and not embedded deductible situation. o The prescription drug benefits must be treated like other medical expenses and are subject to deductible and coinsurance meaning you must meet your medical deductible before the plan begins to pay a portion of your prescription drug expenses. If you are covered under a second medical plan (typically through a spouse s employer), that plan must also be an HDHP in order to contribute to an HSA. You cannot be claimed as a dependent on another person s tax return, other than a spouse. You cannot be covered under Medicare, even Part A. 5

6 Details of an HSA Contributions to your HSA The annual maximum allowable contributions to an HSA, as established by the IRS for 2019 are: Individual: $3,500 Family: $7,000 Individuals 55 and older can make an additional catch-up contribution of $1,000 in A married couple can make two catch-up contributions if both spouses are eligible. The spouses must deposit the catch-up contributions into separate accounts. The annual maximum contribution is based on a calendar year and there is no limit to the dollar balance that can build in the account over time. Contributions can come from: An employer Individual contributions from account owner or other individual (tax-deductible for account holder) IRA Rollover Check with your HR Department as your employer may select a bank to work with through payroll deduction and may not give members the option to use their own bank. Distributions from your HSA You, or your authorized signer, can make withdrawals for qualified expenses. Withdrawals or distributions from your HSA can be made by check, debit card, ATM, or by request (in person or via telephone). Distributions for qualified medical expenses are tax free (refer to next page for examples). Distributions made for anything other than qualified medical expenses are subject to a 20% penalty and are subject to income tax. The penalty is waived if the account owner is 65 or older, or due to death or disability. Qualified medical expenses for your spouse and your tax dependents may be paid from your HSA, even if those individuals are not covered under your medical insurance plan (HDHP). You are responsible for keeping receipts for all distributions from your HSA. The bank does not monitor how the funds in your account are spent. Eligibility To be eligible to make deposits to an HSA, you: Must be currently enrolled in an HSAqualified health plan; May not be enrolled in any other non- HSA qualified health plan. This includes: o Medicare o Tricare May not have, or be eligible to use, a general purpose flexible spending account; Cannot be claimed as a dependent on another person s tax return; Must not have used VA benefits for anything other than preventative services in the past three months. Cannot have a full FSA through a spouse. This is considered other coverage. Check to see if a spouse s employer has a limited purpose FSA to remain in compliance. 6

7 Allowable Expenditures from Your HSA What are eligible medical expenses which I can pay for with tax deductible HSA funds? An eligible medical expense is defined as those expenses paid for care as described in Section 213 (d) of the Internal Revenue Code. Below are two lists - Eligible and Ineligible medical expenses - which may help determine whether an expense is eligible for HSA reimbursement. The lists are intended to serve as a quick reference and may not be fully inclusive. Abdominal Supports Abortion Acupuncture Air conditioner (when necessary for relief from difficulty in breathing) Alcoholism treatment Ambulance Anesthetist Arch supports Artificial limbs Autoette (when used for relief of sickness/disability) Birth Control Pills (by prescription) Blood tests Blood transfusions Braces Cardiographs Chiropractor Christian Science Practitioner Contact Lenses Contraceptive devices (by prescription) Convalescent home (for medical treatment only) Crutches Dental Treatment Dental x-rays Dentures Dermatologist Diagnostic fees Diathermy Drug addiction therapy Drugs (prescription) Elastic hosiery (prescription) Eyeglasses Fees paid to health institute prescribed by a doctor FICA and FUTA tax paid for medical care service Fluoridation unit Guide dog Gum Treatment Gynecologist Healing services Hearing aids and batteries Hospital bills Hydrotherapy Insulin treatment Lab tests Lead paint removal Legal fees Lodging (away from home for outpatient care) Metabolism tests Neurologist Nursing (including board and meals) Obstetrician Operating room costs Ophthalmologist Optician Optometrist Oral surgery Organ transplant (including donor s expenses) Orthopedic shoes Orthopedist Osteopath Oxygen and oxygen equipment Pediatrician Physician Physiotherapist Podiatrist Postnatal treatments Practical nurse for medical services Prenatal care Prescription medicines Psychiatrist Psychoanalyst Psychologist Psychotherapy Radium therapy Registered Nurse Special school costs for the handicapped Spinal fluid test Splints Sterilization Surgeon Telephone or TV equipment to assist the hard-of-hearing Therapy equipment Transportation expenses (relative to health care Ultra-violet ray treatment) Vaccines Vasectomy Vitamins (if prescribed) Wheelchair X-rays 7

8 Ineligible Expenditures from Your HSA Advancement payment for services to be rendered next year Athletic Club membership Automobile insurance premium allocable to medical coverage Boarding school fees Bottled Water Commuting expenses of a disabled person Cosmetic surgery and procedures Cosmetics, hygiene products and similar items Funeral, cremation, or burial expenses Health programs offered by resort hotels, health clubs, and gyms Illegal operations and treatments Illegally procured drugs Maternity clothes Non-prescription medication Premiums for life insurance, income protection, disability, loss of limbs, sight or similar benefits Scientology counseling Social activities Special foods and beverages Specially designed car for the handicapped other than an autoette or special equipment Stop-smoking programs Swimming pool Travel for general health improvement Tuition and travel expenses for sending a problem child to a particular school Weight loss programs 8

9 Frequently Asked Questions about HSA s How do I contribute to a HSA? You can deposit money directly into the account at your discretion either on a pretax payroll deduction basis or on an after tax basis with any bank that offers HSA accounts. If an after tax contribution is made to the HSA, the contribution can be deducted on your tax return. When does the HSA have to be established? The account does not ever have to be opened. However, in order to receive employer contributions, and to take advantage of the ability to pay for medical expenses using pretax funds, the account must be established before the expense has been incurred. Why can t I contribute to an HSA if I m enrolled in other plans? Per IRS regulations, in order to contribute to a HSA, you cannot be enrolled in non-hsa qualified coverage. Who monitors the eligibility to contribute to a HSA and the amount an employee contributes to their HSA? It is the employee s responsibility to determine their eligibility to contribute to a HSA and stay within the limits established by the IRS. Even though your employer may contribute dollars to your HSA account on your behalf, it is not their responsibility to ensure that you are eligible, or stay under the IRS states thresholds (i.e. age 65 or 18+ dependents). What happens if I contribute too much to my HSA, and who is responsible for monitoring that? Ultimately, you are responsible for making sure that your contributions do not reach those thresholds. You will incur penalties for excess contributions if you exceed the amount. Are there lifetime limits on how much you can contribute to a HSA? No. There are just annual limits on contributions. Can I contribute to a HSA if I or my spouse is over age 65 and on Medicare? An employee over 65 can have and contribute to an account as long as they are not enrolled in Medicare part A or B. The employer and employee can contribute to the account up to the maximum contribution limit. The employee is the owner of the account, is under age 65, and the spouse is over age 65. Yes. The employee can contribute to the HSA account (up to the family thresholds), and can receive contributions from their employer into the account. The dollars in the account can be spent on both the employee and the spouse. The employee is over 65, but the spouse is under age 65. The employee cannot have their own HSA account and as such cannot contribute or receive contributions from their employer. The spouse, on the other hand, can open their own HSA account and can contribute up to the family thresholds. The dollars in the account can be spent on both the employee and the spouse. The employee is age 65 but decline Medicare part A. Yes, they can contribute and receive contributions from their employer into the HSA account. The employee turns 65 midyear. The health savings account contribution must be prorated for the year in which an individual reaches age 65 and enrolls in Medicare. IRC Sec. 223(b)(2) provides that an individual may contribute 1/12 of the maximum permissible annual contribution amount for each month that the individual is an eligible individual (to be eligible, the individual must be covered by a high deductible health plan (HDHP) and have no disqualifying coverage or enrollment in Medicare). 9

10 I have a spouse or a dependent that receives Medicare/Medicaid/Disability. Can I contribute to a HSA account? Yes. A current employee that covers a spouse or adult dependent that receives Medicare disability or other insurance coverage can contribute to the HSA and receive employer contributions up to the family thresholds. The HSA account can be used to pay for the dependent s claims. If I'm covered by Medicaid or a similar government insurance program, can I open and contribute to a HSA? No. If you have coverage through a taxpayer-funded program like Medicaid (which may be called something different in your state), you can't open or contribute to a HSA. If my spouse or child is enrolled in Medicaid (or similar public program), do I lose my HSA eligibility? No. Medicaid (which may go by different names in your state) issues individual contracts only. Because you can't receive Medicaid benefits through a family member's policy, a family member's enrollment in Medicaid doesn't impact your HSA eligibility. Whose claim can be reimbursed through a HSA? Eligible medical expenses for any person you claim as a legal dependent for tax purposes. They do not need to be enrolled in a HSA qualified plan. HSAs and Adult Dependents/College Kids An employee can use their HSA account to pay for adult dependent claims. However, if the dependent is not a tax dependent, claims cannot be paid through the employee s HSA account. The adult dependent can open his/her own HSA account to pay for their claims. Is my HSA contribution pre-tax? If you employer allows for a payroll deduction, it is withdrawn on a pre-tax basis. If you choose to make the contribution to the bank directly, it is a tax deductible item on your tax form at year end for federal income purposes and in most states, state income taxes. Wisconsin does allow for the state tax break. You do not need to itemize to receive this tax benefit. Can I roll over monies from an IRA to a HSA? The IRS allows a one-time per lifetime rollover; however you will need to clarify with the IRS if your type of IRA qualifies. The amount of the rollover does count toward the annual limit for that calendar year. If I don t use my HSA money, will I lose it each year like my FSA? No, HSAs are savings vehicles and fully vested. There is no use or lose rule with them. Can a Flexible Spending Account (FSA) and a HSA work together? If you participate in a Flexible Spending Account through your employer or your spouse s employer, you are not eligible for a HSA. However, a Limited Purpose FSA and a HSA are acceptable. A Limited Purpose FSA is used for Dental and Vision expense only. Am I required to track the expenditures made from my HSA? Yes, the individual who establishes the HSA is required to maintain a record of the expenses sufficient to demonstrate that the distributions were for qualified medical expenses. 10

11 Is the employer responsible for reviewing medical expenses? No, the employer is not responsible for policing the employee s HSAs. The individual account holder is responsible for determining that their account funds are being properly used and would be required to provide supporting evidence on the use of their funds if requested under IRS audit. I understand that I can reimburse myself from my HSA for qualified medical expenses that I pay out-of-pocket but is there a time limit? Do I need to reimburse myself in the same year? You have your entire lifetime to reimburse yourself. As long as you had your HSA established at the time the expense was incurred, you save the receipt and it was not otherwise reimbursed, you can reimburse yourself for the expense from your HSA even years later. Can I use my HSA to pay for health insurance premiums? Generally, you cannot treat insurance premiums as qualified medical expenses unless the premiums are for: 1. Long-term care insurance. (Subject to IRS mandated limits based on age and adjusted annually - See IRS Publication 502: Long-Term Care). 2. Health care continuation coverage. (Such as coverage under COBRA See IRS Publication 502: COBRA Premium Assistance.) 3. Health care coverage while receiving unemployment compensation under federal or state law. 4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). Note also that items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. For item (4), if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally are not qualified medical expenses. How do I access the funds after I reach age 65? Once you reach age 65, your funds can be withdrawn at any time and are only subject to ordinary income tax. However, you may avoid any tax by continuing to use the funds for qualified medical expenses. For those over age 65, premiums for Medicare Part A or B, Medicare HMO and employee premiums for employer sponsored health insurance can be paid from a HSA. 11