Wednesday, October 30, 2013

ACA Reset...Let's All Take a Deep Breath!


 
This week’s post is meant to be sort of a “deep breath” or reset on where we’re at with respect to the Affordable Care Act (ACA). Clearly much is being said and written about the law, and in particular, its implementation. Those of us who are charged with explaining and implementing the various requirements of the law don’t have the luxury of questioning its content, complaining about its impact, or bemoaning its "unintended consequences". It’s full speed ahead with implementation and compliance, unless or until Congress, HHS, DOL, CMS, IRS, or someone in a position of authority tells us to STOP…and that is highly unlikely.

So here are some important points to keep in mind as we take stock of where we are at, now some 3 ½ years since the law was signed. More importantly, for the Human Resource managers, Benefits Consultants, CFO’s, CEO’s, Executive Directors, and other stake holders charged with ACA compliance, the following points are meant to help keep “moving the implementation ball forward".

Wednesday, October 23, 2013

Self Funding Overview/Summary

As medical costs and insurance premiums continue to escalate, and health care reform poses new and additional cost pressures, employers are seeking innovative ways to reduce the costs associated with group insurance programs.  The solution for many employers has been the implementation of some form of self-funding.
[IMPORTANT: A previous blog post listed the specific Affordable Care Act (ACA) provisions that DO NOT APPLY to self funded plans.  Click here to access this blog - http://sstevenshealthcare.blogspot.com/2013/08/aca-compliance-understanding.html]
SELF-FUNDING ALLOWS THE EMPLOYER TO ASSUME ONLY AS MUCH RISK OR EXPOSURE AS THE COMPANY CAN WITHSTAND, WITHOUT CAUSING FINANCIAL DISTRESS.

Wednesday, October 16, 2013

Health Reimbursement Arrangements (HRAs) - HSA's 1st Cousin



Last week's post provided an overview of Health Savings Accounts or HSAs.  This week's post is meant to provide an in depth understanding of the HSA's 1st cousin - the Health Reimbursement Arrangement or HRA.

In June of 2002 the IRS issued an important revenue ruling which created the HRA (through a tweaking of existing IRC section 105).  The ruling created tremendous flexibility for the use of employer funded dollars set aside to pay for specific health care items.  As this week's blog title suggests, HRAs are similar to HSA's, but are actually much more similar to Flexible Spending Accounts (FSAs).  However, HRAs have distinct advantages for both employer and employee, over FSAs and HSAs.

So exactly what is an HRA?  HRAs are defined as accounts that:

Wednesday, October 9, 2013

Health Savings Accounts (HSAs) ~ Summary/Overview


 
 Last week's blog post recognized (and celebrated!) the upcoming 10th birthday of Health Savings Accounts (HSAs) in 2014.  Recognizing that some readers don't necessarily understand all the "in's and out's" of HSA's, this week's post offers an in depth overview, and addresses many of the key requirements, limitations, benefits, etc.  Once again, HAPPY BIRTHDAY HSAs!

OVERVIEW

A Health Savings Account (HSA) is a tax-favored savings account used to pay qualified medical expenses (See IRS Publication 502; click - http://www.irs.gov/pub/irs-pdf/p502.pdf ), in conjunction with a QUALIFIED HIGH DEDUCTIBLE HEALTH PLAN.  Some have described them as a "medical IRA".  In the employer/group insurance space, an employer and/or employee may contribute tax preferred funds to the account, which accumulate, earning tax-free interest, to pay for qualified expenses.  Outside of the work place, individuals are also eligible to open and fund an HSA if they are otherwise eligible, and have a qualified health insurance plan. Funds used for non-qualified expenses prior to age 65 are subject to a penalty of 20%, plus income tax (unless the account holder is deceased or disabled).
 
The HSA belongs to the individual on whose behalf it is opened, and is portable to the extent an employee changes jobs, becomes unemployed, etc.   HSA funds used to pay for eligible medical expenses are not taxed!  Employees can make pre-tax or tax deductible HSA contributions, subject to specified maximums (see below). Employer and Employee HSA contributions are exempt from payroll related taxes, including federal and state income tax (except AL, CA, and NJ).  Funds remain in the account holder’s control, and unlike Flexible Spending Accounts (FSAs), they NEVER revert to an employer if unused.

In effect, HSAs enjoy specific tax benefits that NO OTHER savings vehicle offers - a TRIPLE tax benefit.  1.Contributions are pre-tax and/or tax deductible. 2. Interest/Dividends accumulate tax free (in most states). 3. Distributions (qualified) are tax exempt.

In order to establish an HSA and take advantage of the tax savings, a qualified high deductible health insurance plan (QHDHP) must be established (Note: additional health insurance coverage, including Medicare, is NOT allowed).  The qualified high deductible plan, often less expensive, and much easier to understand than traditional health plans, acts as a safety net and covers eligible expenses that are beyond the individuals reach, after the deductible (and if applicable, coinsurance) is met.

ADVANTAGES

·         Favorable tax treatment of HSA contributions [Note: contributions are pre-tax or tax deductible.]

·         Reduced insurance premiums through the accompanying qualified high-deductible plan.

·         Tax-free interest on HSAs accumulates over time.

·         Provides funds to pay for qualified medical expenses (including many expenses not covered by traditional insurance plans) through the HSA account.

·         Funds available to pay for COBRA coverage, and in certain cases, individual insurance in between jobs.

·         Funds can be used to supplement retirement without penalty at age 65. Funds can also be used for items such as Long Term Care insurance, Medicare Part B and D premium, and many more qualified expenses.

·         Generally lower health care out of pocket expenses

HSA CONTRIBUTIONS

·         Contributions are limited to a calendar year maximum, as announced by the IRS each year.
       (For 2013: Individual - $3,250; Family - $6,450.  For 2014: Individual - $3,300; Family - $6,550.)

·         Excess contributions are subject to a 6% excise tax plus ordinary income tax.

·         Contribution limits may increase each year according to federal law.

·         Contributions can be made on a pre-tax (generally via payroll) or tax deductible basis. The deadline for HSA contributions in any given year is April 15th of the year following the year in which the contribution is intended to be made.

·         Account holders age 55 and older are allowed to make “catch up” contributions of $1,000          annually. 

SUMMARY


An HSA is comprised of two parts, the first of which is a qualified high-deductible health insurance plan (QHDHP) that covers eligible pharmaceutical, medical and hospital expenses. The second part of the HSA allows you to make tax-free contributions to an investment or regular bank account, from which you can withdraw money tax-free to pay for qualified expenses. The money accumulates with tax-free interest until age 65, when you can withdraw it penalty free for any purpose, and only be subject to ordinary income taxes. Funds that are withdrawn and used for qualified expenses are penalty and tax free.  HSA plans are personally owned by each participant or employee and thus, go with an individual if they leave one job, whether or not they assume employment elsewhere.  To continue funding the account, the participant must stay enrolled in a Qualified High Deductible Health Plan (QHDHP).


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Wednesday, October 2, 2013

HAPPY BIRTHDAY HSAs!

HEALTH SAVINGS ACCOUNTS (HSAs)
  
The attractiveness and establishment of HSAs continues to grow, as HSAs approach their 10th birthday.  For many, it has long since been forgotten how they came to be, save for those “consumer driven health care geeks” like yours truly.  While many realize that HSAs or Health Savings Accounts, replaced MSAs (Medical Savings Accounts) starting in January of 2004, how they came to be is rather interesting, if not disjointed.  Actually, HSAs were created by the very law that gave us the largest expansion of Medicare since its origin in 1965 - the Medicare Prescription Drug Improvement and Modernization Act of 2003 (later referred to as the MMA), signed by then President George W. Bush on December 8, 2003.  HSAs offer a significant improvement over their predecessor – MSAs – on several levels; not the least of which was a significant increase in the amount of money that could be set aside, tax preferred in the account, for future health care related use.
This week’s blog post is a “celebration” of HSAs (see previous reference to “CDH Geek”), by sharing some insights on the numbers, their application, and their future.