HEALTH SAVINGS ACCOUNTS New Tax-Advantaged Medical Plan Option for 2006

Transcription

1 Occidental Petroleum Corporation Benefits News Special Edition September 2005 HEALTH SAVINGS ACCOUNTS New Tax-Advantaged Medical Plan Option for 2006 As announced in last month s Benefits News, an exciting new medical plan choice will be available in 2006 the Health Savings Account or HSA. An HSA is a special, tax-advantaged savings account that is combined with a high-deductible health plan. In partnership with Aetna, Oxy has developed two new HSA medical plan options for Open Enrollment later this year. These new options the Aetna HealthFund Plus and the Aetna HealthFund Saver combine a medical plan AND a savings account, all in one! When you enroll in one of the HSA options, a savings account is established on your behalf which you can use to pay for qualified health care expenses. Depending on the plan you choose, Oxy provides a contribution to the HSA and/or reduced monthly medical plan contributions. In addition to regular coinsurance, both plans provide 100% coverage for most preventive care services. You can contribute to your HSA through pretax payroll deductions or by sending payments directly to Aetna. You then use an Aetna HSA debit card or Aetna-issued checks to get instant access to your HSA dollars. Or, you may pay for your expenses out-of-pocket and let your HSA grow and earn interest for future expenses like long-term care premiums or health expenses during retirement MEDICAL PLAN RATES Basic HealthFund HealthFund POS Plus Saver Monthly Employee Contributions: Employee $80 $60 $20 Employee + 1 $160 $120 $40 Family $240 $180 $60 Deductible: Employee $300 $1,250 $2,650 Employee + 1 $600 $2,500* $5,250* & Family Oxy HSA Contribution: Employee N/A $500** $0** Employee + 1 N/A $1,000** $0** & Family * There is no separate individual deductible in the HSA plans. ** Employees may also contribute to the HSA. See Annual Contribution Limits on Page 2. Unlike a flexible spending account (FSA), an HSA has no use it or lose it rule. Money left in the account at year end rolls over to the next year. You own your HSA so you keep it, even if you change health plans or jobs. The two new HSA options replace the current POS 1000 high deductible health plan. Why HSAs? Oxy s new HSA options are designed to help meet the diverse needs of our workforce and to provide competitive benefits to employees. HSAs enable you to take more control over your health care dollars and to set aside money on a tax-favored basis. These same advantages also help Oxy control spiraling health care costs. By encouraging employees to manage their own costs and keep what they don t spend, HSAs can help to slow the growth of future health care spending. HSAs also encourage greater employee involvement, which in turn can lead to improved health outcomes a significant plus for all concerned. Continued on page 5

2 HSA Basics... Key Components of the HealthFund Oxy Contributions to The HSA If you enroll in the HealthFund Plus HSA option, Oxy will make an annual contribution of $500 for Employee Only coverage, or $1,000 for Employee + 1 or Family coverage. Funds are available as soon as they are deposited into your account. For 2006, Oxy s contribution will be made in a lump sum at the beginning of the year. If you enroll in the HealthFund Saver HSA option, Oxy does not make an annual contribution, but instead offers significantly lower monthly medical plan contributions. Employee Contributions to the HSA In addition to the required monthly contributions for medical coverage (see page 1), you may choose to contribute to your HSA up to the annual limits shown on the chart below. You may contribute in the following ways: Pretax payroll contributions - Deductions will be made before federal and state taxes (in most states) are taken from your paycheck. After-tax contributions - You may also choose to send after-tax contributions directly to Aetna by check or through electronic funds transfer (EFT) from your bank account. Like an IRA, you can make contributions any time during the year, or up until April 15th of the following year. Then, claim your after-tax contributions as a deduction when you file your income tax return. Annual HSA Contribution Limits Per IRS rules, the combined annual maximum contributions (from you and/or the company) is the amount of your deductible under the medical plan. For example, if HSA Option HealthFund Plus Maximum Maximum Oxy Employee Combined Contribution Contribution Contribution Employee $500 $750 $1,250 Employee +1 & Family $1,000 $1,500 $2,500 HealthFund Saver Employee None $2,650 $2,650 Employee +1 & Family None $5,250 $5,250 you enroll for Family coverage under the HealthFund Plus option, your deductible is $2,500 and Oxy will contribute $1,000; therefore, the most you can contribute for the year is $1,500. Catch-up Contributions For individuals age 55 or older, the IRS allows an additional catch-up contribution of up to $700 in If both the participant and spouse are 55 or older, each may take advantage of the catch-up provision. Any catchup contributions must be made via personal check or by EFT from your bank account directly to Aetna. HSA catch-up contributions are separate from, and in addition to, the age 50+ catch-up contributions allowed under Oxy s Personal Savings Account (the PSA). Investment Options for the HSA Funds Until you accumulate $2,000 in your HSA, your contributions will be invested in an interest-bearing, FDIC-insured cash account (earning 2.99% as of 9/05) at JPMorgan Chase Bank, the custodian of Aetna s HSAs. Above $2,000, you will have access to 8 JPMorgan mutual fund options 3 Asset Allocation funds, 2 Fixed Income funds, 2 US Equity funds and 1 International Equity fund. While the mutual funds are not FDIC-insured and expose investors to the risk of loss of principal, they provide the opportunity to earn higher returns than might be available in the HSA cash account. To learn more about JPMorgan s HSA investment choices and applicable fees, go to oxylink.oxy.com and click on Health Savings Account (HSA) Information. Using Your HSA Funds Aetna will issue a debit card in your name (and additional cards for family members, if requested) to use at the doctor s office, pharmacy or at an ATM. The card will have a VISA logo and may be used like any debit card. Use your Aetna HSA debit card or Aetna-issued checks to access your HSA funds to pay for qualified expenses (including your deductible and coinsurance payments). For a list of associated transaction fees, go to 2

3 HSAs and How They Work oxylink.oxy.com and click on Health Savings Account (HSA) Information. Alternatively, you can choose to pay for expenses out of pocket and save your HSA funds for future expenses. Unlike a flexible spending account (FSA), any unused balance in an HSA automatically rolls over year after year. HSAs have no claim forms, but keep all your receipts and documentation in case you are audited by the IRS. If you use your HSA to pay for non-qualified expenses, it is your responsibility to report the expense as taxable income. An additional 10% penalty tax on non-qualified expenses will apply unless you are age 65 or disabled. Refer to page 4 for a partial list of qualified expenses. The medical plan includes an out-of-pocket maximum that limits the amount you pay for covered services in a given year. When your costs (including the deductible) reach this limit, remaining covered expenses are paid by the plan at 100% for the rest of the year. Under the HSA options, prescription drug expenses are also included in the annual out-of-pocket maximum. Your Medical Benefits Under the HSA options, medical coverage is provided under a POS plan and will operate much like the current Aetna POS plans with deductibles and coinsurance. Once the deductible is met, you pay a percentage of the provider s charges (coinsurance) each time you receive care from a doctor or facility in Aetna s Open Access/Choice II POS network, and a higher coinsurance if you use nonnetwork providers. Any time you use network providers, you also benefit from the lower negotiated rates. The HSA options provide 100% coverage for the following in-network preventive care services: routine colonoscopies, sigmoidoscopies, PSA tests, mammograms, Pap smears, well baby care and child immunizations. However, if you use a non-network provider, these services will be subject to the deductible and paid at the lower non-network levels. Routine physicals are not covered under the medical plan. Unlike the Basic POS, there is no lifetime maximum benefit under the HSA options. Under IRS rules, if you enroll for Employee + 1 or Family coverage, the entire deductible must be met before the plan begins to pay benefits. In other words, benefits will not be paid for any one individual until the full family deductible has been met. An HSA enables you to take control of your health care... and your health care dollars! Your Prescription Drug Benefits Under the HSA options, drug coverage will largely mirror the coverage under the current POS plans. You pay coinsurance for each covered prescription, but subject to a minimum and maximum payment and a combined medical/drug deductible. Drug coverage under the HSA options will be provided through Aetna instead of Medco, so you ll only need one Medical ID card. Under IRS rules, prescription drug coverage must be subject to the same deductible as other medical expenses. When you fill prescriptions, you will pay the cost of your prescriptions until the deductible has been met. Even if you haven t met your deductible, your cost will be lower at an Aetna network pharmacy because they have negotiated lower prices for their members. There is no separate $1,000 out-of-pocket maximum for drugs under the HSA options. 3

4 New HSA Options Replace the POS 1000 Oxy introduced the POS 1000 in 2003 as a first step toward a high-deductible health plan, and over 15% of employees are now enrolled. The two new HSA plans will replace the POS 1000, so employees who are currently enrolled in the POS 1000 will need to choose a another medical option for HSA Tax Advantages Contributions you make to your HSA through payroll deductions are made using pretax dollars (money that has not been subject to income tax). Therefore, they are not considered taxable income on your federal income tax return. Contributions are also nontaxable in most states. If you make contributions to your HSA using after-tax dollars (money that has already been subject to income tax) via check or EFT, your contributions can be taken as an above-the-line tax-deduction when you file your tax return. An above-theline deduction allows you to reduce your taxable income by the amount you contribute to your HSA after tax. You do not have to itemize your deductions to benefit. Your HSA funds earn interest tax free. Withdrawals for qualified expenses are tax free. In the event of your death, your HSA balance can transfer to your surviving spouse tax free. If your beneficiary is someone other than a spouse, the funds are taxed as ordinary income. Note: If HSA funds are used for other than qualified medical expenses, the expenditure will be taxed and, for individuals who are not disabled or over age 65, subject to a 10% penalty tax. Refer to the next column for a listing of qualified expenses. Qualified Expenses Under Your HSA In addition to expenses covered by the plan, you may use your HSA for any qualified health-related expense allowed by the IRS. Certain expenses are not covered under Oxy s medical plan, but are still considered qualified for payment with HSA dollars. The following list provides some typical examples of qualified expenses: Medical deductibles and coinsurance Diagnostic services Dental and orthodontia Routine physicals LASIK surgery, contact lenses and eyeglasses Birth control pills, drugs for sexual dysfunction and most over-the-counter drugs Chiropractic services Hearing aids Medicare and Medicare Advantage premiums COBRA premiums Long-term care premiums For information about IRS-allowable expenses, obtain IRS Publication 502 through (click on Forms and Publications ) or by calling Limited Purpose FSA While HSAs offer tax savings opportunities and other advantages, there are IRS restrictions on how HSAs may be used in conjunction with a health care FSA. In general, most expenses covered under Oxy s HSA medical plan options cannot be paid from an FSA until the medical plan deductible is met. FSA funds, however, can be used to pay first-dollar coverage of dental, vision and preventive drugs and services. Drugs prescribed because an individual is at risk of developing a disease would be considered preventive e.g., medication taken to lower cholesterol to prevent heart disease. Preventive services include, among other things, routine physicals, screening services and prenatal care. After you meet the deductible, an FSA can also be used for any qualified medical expense not covered under Oxy s plan, including over-the-counter drugs. Since unused FSA funds are forfeited at the end of the year, employees enrolling in an HSA option will need to take extra care in deciding how much money, if any, to place in a pretax FSA. References in this document to the tax-free nature of HSAs apply to federal income tax. HSAs are also tax free in most states. As of 9/05, some states in which Oxy operates (Alabama, California, New Jersey and Pennsylvania) have not yet passed legislation that will grant state tax benefits to HSA contributions and investment earnings. 4

5 Why HSAs? (continued from page 1) More Control Over Your Health Care Dollars With an HSA, you control how your health care needs are met and financed. You decide how much money you want to contribute each year and how that money should be spent or saved. Because you retain ownership of any unused funds, you will likely be more aware of the true cost of services and more deliberate in your decisions. You may price shop, ask more questions, and get more involved in prevention and treatment. Build Your Nest Egg An HSA not only helps manage health care expenses, it can also be a powerful tool to help you build long- Nobody spends someone else s money as carefully as they spend their own. term savings for your retirement. This is because of the HSA s ability to provide tax benefits beyond those of an IRA. Contributions to an HSA are excluded from taxable income even withdrawals are tax-free when used to pay for qualified medical expenses. You also have the opportunity to earn tax-free returns on your HSA savings. If you pay medical costs with aftertax money, or you remain healthy and don t need to withdraw from your HSA, you can let the investment earnings accumulate tax-free. You can then use the money in the account to supplement your retirement income. Once you reach age 65, withdrawals can also be made for non-medical purposes but are taxed as ordinary income. Funds used for medical expenses are never taxed! As you seek additional opportunities to build retirement savings, HSAs offer a unique and innovative vehicle for both accumulating wealth and managing health expenditures, all on a tax-favored basis. HSAs Aren t for Everyone Milton Friedman Though HSAs can be a wise choice for a broad range of employees, they aren t for everyone. Those who frequently use health care services may find that an HSA is not their best option. In addition to studying this brochure, be sure to utilize the Plan Cost Estimator and other tools described on page 7 to help you determine which plan is right for you and your family. You may also want to consult with your tax advisor about the potential tax advantages that an HSA can provide. The information provided in this document is NOT tax advice. While the information is believed to be accurate as of the print date, it is subject to change. Consult a qualified tax expert for advice on determining eligibility for any tax benefit mentioned herein. 5

6 With an Aetna HealthFund HSA, you get: Tax Advantages HSA contributions are tax free, earn interest tax free and money is not taxed when withdrawn to pay for qualified health care expenses. Opportunity to grow your HSA for future health care expenses. Ownership the savings account is yours to keep, even if you change health plans or jobs. Information a suite of online tools to help you make more informed health care choices. Is an HSA Option Right for You? Review your medical services and expenses for the past few years and estimate any expected changes for the coming year. Compare the difference between employee contributions for the HSA options and other health insurance options available to you. Remember, you can fund your HSA with some or all of that difference. Are you looking for additional opportunities to save for retirement? Are you comfortable with the increased risk of a higher deductible plan? SAMPLE SCENARIOS The three simplified examples below illustrate that the best plan option depends on personal circumstances and the amount of health care services utilized during the year. At Open Enrollment, use the Plan Cost Estimator (see page 7) to help determine which option is best for you and your family. Assumptions: Resulting out-of-pocket costs calculated as total monthly employee contributions plus cost sharing (e.g., deductibles and coinsurance) minus Oxy funding of HSA Where coinsurance is applicable, coverage is at 80% Preventive care and drug claims are included in Total Annual Claims 6

7 RESOURCES TO HELP YOU MANAGE YOUR HEALTH CARE A HealthFund HSA gives you the information and resources you ll need to help you take a more active role in your health care and spend your health care dollars more effectively. PLAN COST ESTIMATOR* For help deciding which medical plan option is best for you in 2006, access the Plan Cost Estimator during Open Enrollment. Using estimates you provide of your health care needs, this tool allows you to see side-by-side comparisons of the available plans. By adjusting the assumptions (number of office visits, medical tests, etc.), you can see how your out-of-pocket costs will vary depending on utilization. The Plan Cost Estimator also helps you decide how much to contribute to FSA and HSA accounts and shows their potential tax savings. AETNA NAVIGATOR Log on to your secure Aetna Navigator member website at for personalized health and benefits information. Use the Cost of Care Tool to help you compare estimated in-network and out-of-network costs for health care services in your area. The Hospital Comparison Tool lets you compare area hospitals on measures that are important to your care. Search the Aetna InteliHealth website for credible health and wellness information and helpful interactive features. Or go to the Healthwise Knowledgebase where you can research clinical information on thousands of health topics and medications. Access up-to-date information on network health care providers through the DocFind online directory including important credentials like education, board certification and languages spoken. 24-HOUR INFORMED HEALTH LINE Obtain around-the-clock access to a team of nurses experienced in providing information on a variety of health topics. Aetna s Informed Health Line (IHL) nurses will provide information about health issues, medical procedures and treatment options, and help you communicate more effectively with your doctors. To reach an IHL nurse, call the Oxy HealthLine at DISEASE MANAGEMENT PROGRAM Through Aetna s Healthy Outlook Disease Management Program, employees and dependents who are identified with certain conditions (diabetes, asthma, chronic heart failure and coronary artery disease) will receive educational materials and, in some cases, individualized case management, with an emphasis on making positive lifestyle changes. Once identified as eligible, and if you choose to participate, you will receive a personalized letter introducing you to the program, a personal health review by a trained professional and ongoing telephone access to disease management health care professionals. Additional resources may be available if the condition is considered serious or high risk. NEW CORPORATE WELLNESS PROGRAM* In January, Oxy will roll out a corporate-wide wellness program for employees and spouses that will include: Annual on-site biometric health screenings to help assess current health status and risks. Access to an online Health Risk Assessment and comprehensive health website to help you better understand your risks and maintain or improve your health. For individuals at greater risk of certain health conditions, a phone-based coaching and targeted behavior modification program. All services are 100% paid by Oxy. The new program is an enhanced version of the program already available to Oil & Gas employees. Participation in the program is voluntary, and Oxy receives no records of individual results. More information will be sent to you later this year. *Available to all Oxy employees 7

8 What s Different Under the HSA Plans? Basic POS HealthFund HSA Plus and HealthFund HSA Saver HSA Plus HSA Saver Deductible Individual: $300 Employee Only: $1,250 $2,650 Family: $600 Employee + 1: $2,500 $5,250 Family: $2,500 $5,250 No change. If you enroll for Employee +1 or Family coverage, the entire corresponding deductible must be met before the plan begins to pay benefits. Combined Medical/ No; there is currently no deductible for drug Yes; you must meet the deductible shown Drug Deductible? coverage. above before coinsurance applies for either medical or drug coverage. Drug Vendor Medco Aetna Preventive Coverage 80% (after deductible) for in-network covered 100% (before deductible) for in-network services. 70% (after deductible) for out-of- covered services. 70% (after deductible) for network covered services. out-of-network covered services. Annual Out-of-Pocket Salary-based with separate individual and Salary-based, but not less than plan deductible. Maximum family maximums. No change. No separate individual maximum. Lifetime Maximum $1,000,000 Unlimited Use of a Flexible No change. Limited purpose Spending Account Before medical/drug deductible: dental,vision, (FSA) preventive drugs and services. After medical/drug deductible: same a regular FSA Use of a Health Savings N/A Per IRS rules, HSAs may only be used Allowed for most medical, dental, and vision Account (HSA) with a high-deductible health plan. expenses; see Qualified Expenses on page 4. Other Things to Think About... To be eligible for an HSA, you cannot have other health insurance coverage (including a spouse s plan) that is NOT a high-deductible health plan. Similarly, if you elect to cover your spouse, he/she may not have other coverage that is not a high-deductible health plan. Making employee contributions to fund your HSA is entirely voluntary you may enroll in one of the HSA options without contributing any of your own money to the HSA account. (Payroll deductions for the medical coverage level you elect are, of course, required.) If you have questions about the new HSA options, please see the list of Frequently Asked Questions (FAQs) on oxylink.oxy.com under Health Savings Account (HSA) Information. Several helpful links which provide general information about HSAs are also available on the OxyLink website. Go to oxylink.oxy.com and click on Health Savings Account (HSA) Information. Additional information about enrollment procedures, HMO contributions and other details will be distributed with Open Enrollment materials. The company expects and intends to continue its benefit plans but does not guarantee any specific level of benefits or the continuation of any benefits during any periods of active employment, inactive employment, disability or retirement. Benefits are provided solely at the company's discretion and do not create a contract of employment. The company reserves the right to modify, suspend or terminate any of its plans at any time. This information is applicable to eligible nonrepresented employees. Applicability to represented employees is governed by local collective bargaining agreements. Subject to this and future agreements, the company reserves the right to change, amend or terminate any benefit plan at any time. 8