Do-it-Yourself Health Care –The Health Savings Account

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  • Sandy Shapiro makes introductory remarks and introduces the Options Blue team.
  • I wanted to take a moment to review the history of CDHPs. FSAs have been around for a long time, but HSAs and HRAs are still pretty new. 1996 Archer Medical Savings Accounts (MSAs) were first introduced as a pilot program. They were similar to today’s HSA with respect to coordination with a high deductible health plan and tax advantages However they were limited in scope and available only to self-employed and small businesses 2002 the IRS issued a series of rulings and other guidance that describe the requirements for a health reimbursement arrangement. Medicare Prescription Drug, Improvement and Modernization Act was introduced in 2003 Removed limitations on MSAs and re-named them “health savings accounts” or HSAs (Section 223 of the Code) December, 2006 additional changes were made that improved account funding opportunities SelectAccount: 20 years of administering personal spending accounts. Blue Cross: our early MSA experience paid off and allowed us to be leaders in offering HSAs in this market. Blue Cross: largest CDHP enrollment for a single state insurer; 8 th nationally in terms of CDHP health plan enrollment. 54% of our enrollment is in HSAs. Blue Cross is very committed to consumer directed health plans. We have 20 years of experience administering personal spending accounts. (notes: invested $10 million in the last two years, and another $8 to $10 million over the next two years). Blue Cross was the first plan in Minnesota to introduce CDHP plans. Today, we rank 8 th nationally in CDHP membership (213,000 members). And among the Blues, Minnesota ranks #1 in CDHP membership. SelectAccount, our subsidiary that administers the spending accounts, is the 8 th largest custodian nationally (managing $68 million in total HSA assets). Small employers account for 88% of our CHDP groups and 20% of CDHP membership. Our single largest customer is the Minnesota Service Cooperatives with 12,600 account holders. And, we have 13,300 Individual account holders. Our penetration of small and mid-size employers translates into products and services well suited to Concordia’s customer base. Source for rankings: Inside Consumer Directed Health Care
  • As I just mentioned, the IRS defines what is a qualified HDHP. It’s subject to change each year IRS makes this change and they have to let us know by June 1 for the following year. In 2008 these requirements are -
  • For 2008. these amounts are… Indivuduals who are 55 and older, the IRS allows them to make…
  • There are significant consequences if you withdraw dollars for non-qualified medical expenses. For starters, you need to count it as income when you file your tax return. Plus, a 10 % tax penalty applies. However, if you are over age 65, you’ll pay income tax on those dollars, but no penalty. At death if the surviving spouse is the designated beneficiary, the HAS becomes an HAS for that individual. If someone other than a spouse is the designated beneficiary, the HAS is terminated as of the date of death and the fair market value becomes taxable income to that person. If there is no designated beneficiary the remaining assets become part of the estate and the fair market value becomes taxable income to the deceased individaul on the final return.
  • Speak to bullets…. Custodial account owned by the individual . It’s also portable – because the account is owned by the employee if an employee terminates his/her employment the account travels with the employee. If the employee continues to be covered under a qualified HDHP he/she can continue to contribute to their HSA. If they are no longer covered by a HDHP, they can no longer contribute however they can spend down their account or save the dollars for future expenses. The account can be funded by the employee, employer or both to a maximum contribution amount set by the IRS Contributions can be used for current medical expenses or saved for future use – such as their future retirement expenses. its up for the employee to decide when they want to use their dollars. Puts the employee in the driver seat. Withdrawals are not taxed if used for qualified medical expenses. Unused funds roll over to the next year – there is not “use it or lose it” like with an FSA Interest earned and investment gains are also tax free. HSAs must be paired with a qualified HDHP – The IRS sets these requirements, which we will now look at review…
  • Speak to bullets…. Custodial account owned by the individual . It’s also portable – because the account is owned by the employee if an employee terminates his/her employment the account travels with the employee. If the employee continues to be covered under a qualified HDHP he/she can continue to contribute to their HSA. If they are no longer covered by a HDHP, they can no longer contribute however they can spend down their account or save the dollars for future expenses. The account can be funded by the employee, employer or both to a maximum contribution amount set by the IRS Contributions can be used for current medical expenses or saved for future use – such as their future retirement expenses. its up for the employee to decide when they want to use their dollars. Puts the employee in the driver seat. Withdrawals are not taxed if used for qualified medical expenses. Unused funds roll over to the next year – there is not “use it or lose it” like with an FSA Interest earned and investment gains are also tax free. HSAs must be paired with a qualified HDHP – The IRS sets these requirements, which we will now look at review…
  • Speak to bullets…. Custodial account owned by the individual . It’s also portable – because the account is owned by the employee if an employee terminates his/her employment the account travels with the employee. If the employee continues to be covered under a qualified HDHP he/she can continue to contribute to their HSA. If they are no longer covered by a HDHP, they can no longer contribute however they can spend down their account or save the dollars for future expenses. The account can be funded by the employee, employer or both to a maximum contribution amount set by the IRS Contributions can be used for current medical expenses or saved for future use – such as their future retirement expenses. its up for the employee to decide when they want to use their dollars. Puts the employee in the driver seat. Withdrawals are not taxed if used for qualified medical expenses. Unused funds roll over to the next year – there is not “use it or lose it” like with an FSA Interest earned and investment gains are also tax free. HSAs must be paired with a qualified HDHP – The IRS sets these requirements, which we will now look at review…
  • Do-it-Yourself Health Care –The Health Savings Account

    1. 1. October 27, 2009 Dave Spalding, VP Medical Banking Blue Cross and Blue Shield of Minnesota © 2008 Blue Cross and Blue Shield of Minnesota Do-it-Yourself Health Care – The Health Savings Account Change and Reform in the American Health Care System
    2. 2. Agenda for today <ul><li>Introduction </li></ul><ul><li>Brief History of HSAs </li></ul><ul><li>The Basics </li></ul><ul><ul><li>Break </li></ul></ul><ul><li>Market Adoption </li></ul><ul><li>Extra Credit </li></ul>
    3. 3. Brief History of HSAs
    4. 4. HSA Timeline 8 million people covered by HSAs Archer Medical Savings Accounts (MSA) HSAs take off following key changes Medicare Modernization Act creates Health Savings Accounts 1996 2003 2009 Dec. 2006 1995 2010
    5. 5. HSA enrollment growth <ul><li>Rapid market adoption </li></ul><ul><li>Midwest and South </li></ul><ul><li>Multiple market segments </li></ul><ul><ul><li>individual, small business, national employers </li></ul></ul><ul><li>Enrollee Demographics </li></ul><ul><ul><li>mirrors commercial insured </li></ul></ul><ul><ul><li>higher education level </li></ul></ul>Source: AHIP
    6. 6. Minnesota leads the nation in adoption <ul><li>Relatively vibrant commercial market place: </li></ul><ul><ul><li>Healthy market segments </li></ul></ul><ul><ul><li>Innovative employers </li></ul></ul><ul><ul><li>Relatively educated workforce </li></ul></ul><ul><ul><li>Strong local health plans </li></ul></ul>As a percent of commercially insured
    7. 7. Something is happening in Minnesota <ul><li>In 2007, growth in health expense per enrollee was the lowest in a decade </li></ul><ul><li>In 2007, growth in health expense per enrollee was lower than growth in wages/income for first time in a decade </li></ul>
    8. 8. The Basics
    9. 9. 1. The HSA belongs to an individual <ul><li>Medical “401 (k)” </li></ul><ul><li>Encourage individuals to save for their own medical expenses </li></ul><ul><li>Employer and Employee contributions permitted </li></ul><ul><li>Portable </li></ul><ul><li>Inheritable Asset </li></ul><ul><li>“ Rolls-over” annually </li></ul>
    10. 10. 2. The HSA is a tax-advantaged account <ul><li>TRIPLE TAX BENEFITS </li></ul><ul><li>Individual account contributions lower your taxable income </li></ul><ul><li>Savings can be accessed at anytime, tax-free to pay for qualified medical expenses </li></ul><ul><li>Savings can be invested free of capital gains </li></ul>
    11. 11. 3. Tax-favored HSAs have a lot of rules <ul><li>BIG RULES </li></ul><ul><li>Rule-maker is the IRS </li></ul><ul><li>Must have qualified high deductible health insurance </li></ul><ul><li>Annual contributions limits </li></ul><ul><li>Penalty for non-qualified withdrawal </li></ul>
    12. 12. Big Rules: What is qualified insurance? <ul><li>Health insurance meeting all statutory requirements for minimum deductibles and maximum out-of-pocket costs </li></ul><ul><li>All services, other than preventive care, are subject to the deductible, including prescription drug purchases </li></ul>$5,900 maximum out of pocket $1,200 minimum deductible Self-only coverage Family coverage (self + two or more) $11,900 maximum out of pocket $2,400 minimum deductible 2010 Statutory requirements
    13. 13. Big Rules: Annual contribution limits <ul><li>COLA Index </li></ul><ul><li>Maximum contribution in 2010 </li></ul><ul><ul><li>$3,050 (single coverage) </li></ul></ul><ul><ul><li>$6,150 (family coverage) </li></ul></ul><ul><li>Catch-up contributions </li></ul><ul><ul><li>Individuals 55 and older may make additional contributions up to $1,000 </li></ul></ul>
    14. 14. Big Rules: Non-Qualified withdrawals <ul><li>Withdrawals for non-qualified medical expenses </li></ul><ul><ul><li>Withdrawal amount is counted as income </li></ul></ul><ul><ul><li>10% excise tax applies </li></ul></ul><ul><li>Non-qualified withdrawals for those 65+ </li></ul><ul><ul><li>Withdrawal amount is counted as income </li></ul></ul><ul><ul><li>No excise tax applies </li></ul></ul>
    15. 15. Small Rules <ul><li>Eligibility details </li></ul><ul><ul><li>Married couples, tax dependents, seniors, domestic partners </li></ul></ul><ul><li>Contribution details </li></ul><ul><ul><li>Mid-year enrollment, IRA roll-overs, Comparability (employer contributions), FSAs </li></ul></ul><ul><li>Withdrawals </li></ul><ul><ul><li>Qualified medical expenses, maintaining records, no-time limit </li></ul></ul><ul><li>Type of insurance </li></ul><ul><ul><li>Medical, vision, dental, LTC, etc. </li></ul></ul>
    16. 16. Health Savings Account Basics in Review <ul><li>Individual medical savings account </li></ul><ul><li>Triple tax benefits </li></ul><ul><li>Lot’s of IRS driven rules </li></ul>
    17. 17. HSA Math Example
    18. 18. Income Tax Savings Example
    19. 19. Market Acceptance
    20. 20. The 30,000 foot view <ul><li>Kaiser Family Foundation Survey </li></ul><ul><ul><li>HSA enrollment exceeded HMO enrollment nationally in 2009 </li></ul></ul><ul><ul><li>Annual insurance premiums for HSAs are 20-30% lower than traditional products </li></ul></ul><ul><li>American Academy of Actuaries </li></ul><ul><ul><li>After first year, HSA plan premium increases are 3 to 5% lower than traditional insurance </li></ul></ul>
    21. 21. Are higher deductibles “working”? The Finance Department says YES Source: Watson Wyatt 2008 Purchasing Value in Healthcare employer survey Forecasted premium increase
    22. 22. Employer Contributors and Amounts Source: Blue Cross Blue Shield Association CDH survey 2008 Source: Kaiser Family Foundation / HRET 2009 Annual Benefits Survey
    23. 23. Become a high performing employer <ul><li>Towers Perrin research has identified four cornerstones for success for employers: </li></ul><ul><ul><li>Build a new mind set around health </li></ul></ul><ul><ul><li>Help employees gain confidence in their ability to manage financial risk </li></ul></ul><ul><ul><li>Must have an organizational climate of trust and employee well-being </li></ul></ul><ul><ul><li>Thoughtful change management, communication and visible leadership </li></ul></ul>88% of enrollees at high performing employers reported a good experience with an HSA or HRA based-plan vs. 29% at low performing employers 71% of enrollees at high performing employers believe it is appropriate for them to share medical expenses with their employer
    24. 24. Risk Adjusted Utilization: HSA vs Traditional <ul><li>Blue Cross 4 year study covering over 1 million enrollees on a risk adjusted basis: </li></ul><ul><ul><li>Decreases in x-rays, lab tests and ER visits </li></ul></ul><ul><ul><li>Higher levels of preventive care </li></ul></ul><ul><ul><li>Same number of people using insurance </li></ul></ul><ul><ul><li>One less script per year and higher generic adoption </li></ul></ul>
    25. 25. Changing Consumer Behavior Source: Blue Cross Blue Shield Association CDH survey 2008
    26. 26. More Data Source: Blue Cross Blue Shield Association CDH survey 2008
    27. 27. Healthier Behavior Source: Blue Cross Blue Shield Association CDH survey 2008
    28. 28. Global Competition US 55%, 24% GLOBAL 44%, 52% CHINA 62%, 87% FRANCE 22%, 35% INDIA 83%, 94% MEXICO 54%, 94% SOUTH AFRICA 60%, 17% <ul><li>Private Sector Share of Health </li></ul><ul><li>Out-of-Pocket % of Private sector </li></ul>
    29. 29. Extra Credit <ul><li>According to the New England Journal of Medicine, what is the number one determinant of early death in the US: </li></ul><ul><ul><li>Genetics </li></ul></ul><ul><ul><li>Healthcare </li></ul></ul><ul><ul><li>Behavior </li></ul></ul><ul><ul><li>Environment </li></ul></ul>
    30. 30. Extra Credit <ul><li>What is the annual out-of-pocket maximum for Medicare? </li></ul><ul><ul><li>$5,000 </li></ul></ul><ul><ul><li>$25,000 </li></ul></ul><ul><ul><li>There is no maximum </li></ul></ul>
    31. 31. Extra Credit <ul><li>How will Healthcare Reform impact HSAs: </li></ul><ul><ul><li>Eliminate them </li></ul></ul><ul><ul><li>Expand them </li></ul></ul><ul><ul><li>Don’t know, don’t care – ready to go get a drink! </li></ul></ul>
    32. 32. Extra Credit <ul><li>Based upon average life expectancy, the Employee Benefits Research Institute estimates the lifetime, out-of-pocket expenses for a couple, aged 65, retiring in 2009 to be: </li></ul><ul><ul><li>$15,000 to $20,000 </li></ul></ul><ul><ul><li>$55,000 to $104,500 </li></ul></ul><ul><ul><li>$168,000 to $415,000 </li></ul></ul>
    33. 33. © 2008 Blue Cross ® and Blue Shield ® of Minnesota is a nonprofit independent licensee of the Blue Cross and Blue Shield Association

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