6/26/2012. Definitions HRA and HSA comparison HSA eligibility Effect on your VEBA account Looking ahead Questions

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1 Understanding s and s Presented by: Dawson Mortimore and Miriam Woodard June 28, 2012 Discussion Topics Definitions and comparison eligibility Effect on your VEBA account Looking ahead Questions Definitions Health Reimbursement Arrangement (commonly referred to as VEBA in Washington State) Health Savings Account High Deductible Health Plan 1

2 Eligibility & Funding Establishment of account High Deductible Health Plan (HDHP) required Eligibility to participate Any employer (our clients plans are limited to governmental employers, including school districts) NO Employee who meets employer s defined eligibility criteria Eligible individual Employer Integrate with employersponsored Section 125 Plan YES For 2011 and 2012: $1,200 deductible (self only) $2,400 deductible (family) Eligible employee/individual covered by HDHP and no other non HDHP coverage Eligibility & Funding (continued) Funding an account Employer* Individual Employee salary reduction dollars Employer Maximum contribution No maximum For 2011 and 2012: Individual $3,100 Family $6,250 *Source funds are often from mandatory employee contributions, sick leave cash outs (annual or at retirement), other leave cash outs, etc. Taxation Taxation of contributions No federal or state income tax* or Social Security/Medicare tax No federal or state income tax* or Social Security/Medicare tax Taxation of Tax free freeifassets are held ina tax Tax free/deferred free/deferredcompensation earnings (assuming assets exempt trust withdrawals for non medical expenses result in federal and/or state income tax, plus an excise invested) tax if before age 65 FICA (payroll tax) savings /No *State taxes could apply in some states. 2

3 Account Use Qualified medical expenses Qualified medical expenses as defined in IRC 213(d), including over the counter drugs if prescribed Qualified medical expenses as defined in IRC 213(d), including over the counter drugs if prescribed Non medical withdrawals Not allowed, but will be included in gross income and subject to 20% excise tax, unless made after death, disability, or age 65 Account Use (continued) Qualified retiree insurance premiums Carryover from year to year Portable after termination Pre 65 retiree health insurance COBRA Medicare Medicare supplement policies Qualified long term care (LTC) (if vested) Only for: Post 65 health insurance (except Medicare supplement policies) Medicare COBRA Qualified long term care (LTC) Health insurance, if receiving unemployment Eligibility An individual can make (or receive) contributions to an if they: Have coverage under an qualified HDHP Have no other first dollar, non HDHP medical coverage (through self or spouse) Are not enrolled in Medicare Cannot be claimed as a dependent on someone else s tax return 3

4 Eligibility a health plan that meets the statutory requirements for annual deductibles and out of pocket expenses provides benefits before an employee meets their deductible (e.g. coverage under a spouse s health plan, general plan, general purpose FSA or coverage, etc.) NOTE: contributions must stop once an employee is enrolled in Medicare; the employee will keep the money in their for future use. Effect on your VEBA account Can you have an and an? YES! Contributions can be made to both an and an However, if you or your employer are funding an, you must elect limited VEBA plan coverage to be eligible Limited VEBA Plan Coverage Permits reimbursements for dental, vision, and orthodontia expenses ONLY while in limited status All other expenses incurred while coverage is limited are not covered Can make one limited coverage election per calendar year (more than one may be possible for HIPAA special enrollment rights) If you (or your employer) are not contributing to an, you do not need to elect limited coverage for your VEBA account 4

5 Looking Ahead VEBA Service Group is available to help employers and educate participants as more policy and guidance are issued on ESSD 5940 Visit veba.org for more information on s, s and FSAs and how they interact Questions Dawson Mortimore Dawson_Mortimore@ajg.com Miriam Woodard Miriam_Woodard@ajg.com 5