Understanding High Deductible Health Plans and the Role of: Health Savings Accounts Health Reimbursement Arrangements UNITED STATES OFFICE OF PERSONNEL

Understanding High Deductible Health Plans and the Role of:Health Savings Accounts Health Reimbursement Arrangements

UNITED STATES OFFICE OF PERSONNEL MANAGEMENT


High Deductible Health Plans (HDHP) and Open Season

• OPM is pleased to offer a new health care option.• HDHPs will give the Federal Team additional

opportunities to save and better manage their hard-earned dollars.

• The Federal Team will be able to enroll in HDHPs this Open Season.


Part 1: High Deductible Health PlanIntended to cover serious illness or injury

Preventive CareFirst dollar coverage, or co-payment

or a limited benefit amount

Part 2A: Health Savings Account

Dollars for healthcare expenses

Part 2B: Health Reimbursement

ArrangementCredits for healthcare expenses

Or

High Deductible Health Plans – Part 1


• High Deductible Health Plans (HDHP) provide insurance coverage.

• Service delivery in HDHP programs may be offered with a:– Preferred Provider Organization (PPO)

– Health Maintenance Organization (HMO)

– Point of Service (POS)

• Depending on the HDHP, you may have the choice of using in-network or out-of-network providers. Using in-network providers will save you money.

The Basics of High Deductible Health Plans


The Basics of High Deductible Health Plans Cont.• With the exception of preventive care, the annual

deductible must be met before plan benefits are paid.

• An exception is made for preventive care services which are paid after a small deductible or co-payment. A maximum dollar amount (up to $300, for instance) may apply.

• An HDHP with a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA):– Helps to build savings for future medical expenses– Allows greater flexibility over how you use your

health care dollars


• HDHPs must have minimum deductibles of:– $1,100 for Self-Only coverage– $2,200 for Self and Family coverage

• HDHPs have higher annual out-of-pocket limits than many plans. The maximum in-network, out-of-pocket limits for HDHPs in the FEHB Program are:

– $5,000 for Self coverage

– $10,000 for Self and Family coverage

The Basics of High Deductible Health Plans Cont.


How Out-of-Pocket Costs Are Counted Towards the Catastrophic Limits

Standard Plan

High Deductible Health Plan

Deductible? No Yes

Copayments for doctor visits? No Yes

Drug costs above plan payment? No Yes

Other out-of-pocket expenses for covered benefits?

Yes Yes

Charges above plan allowance? No No

Medical expenses not covered by the plan?

No No

Which expenses count towards the catastrophic limit?


Part 1: High Deductible Health Plan

Intended to cover serious illness or injury







Or

Health Savings Account – Part 2A


• A Health Savings Account (HSA) and a Health Reimbursement Arrangement (HRA) provide a tax-advantaged way to save for future medical expenses.

• An HSA is a component of a High Deductible Health Plan (HDHP). You must be enrolled in an HDHP to have an HSA.

Insurance + Tax-Advantaged Savings Vehicle = HDHP/HSA

• An HSA is an account that you own for the purpose of paying qualified medical expenses for yourself, your spouse, and your dependents.

The Basics of a Health Savings Account


Funding Your HSA

• Your HSA may be funded up to your HDHP’s deductible through the “premium pass through” and your voluntary contributions.

• Your voluntary contribution is made directly to an IRS approved trustee administering the HSA. Plan $$ + member’s own contribution $$ + earned interest = HSA


• By law, you must enroll in an HDHP to be eligible for an HSA.

• By law, you are not eligible for an HSA if you:– are enrolled in Medicare,– are covered by another health care plan that is not an HDHP,– can be claimed as a dependent on someone else’s tax return,– are enrolled in a general Health Care Flexible Spending Account

(or covered by a spouse’s FSA),– are covered by a non-HDHP such as TRICARE and TRICARE

For Life, or– are covered by VA benefits and have used VA medical services

within the previous 3 months.

• The HDHP helps you determine your eligibility for an HSA.

• If you do not qualify for an HSA, your HDHP will establish a Health Reimbursement Arrangement (HRA) for you.

Eligibility for aHealth Savings Account


• Tax-deductible contributions – Your own HSA contribution – deductible on

your income tax return (applies with either itemized or standard deduction).

– Annual contributions may be made any time during the calendar year up to April 15 of the following year (tax return due date).

– The health plan’s “premium pass through” is not taxable.

– The annual maximum contribution is established by law and generally cannot be greater than the HDHP deductible.

The Features of a Health Savings Account


In addition to the maximum contribution, (the plan’s annual deductible) individuals between the ages of 55 and 65, can make “catch-up” contributions to the HSA each year.

Year Amount

2006 $700

2007 $800

2008 $900

2009+ $1,000

Catch-Up Contribution to HSA


Features of a Health Savings Account

Health plan “premium pass

through”

Voluntary Contributions

Contributions

Earnings Tax-free growth

No tax on the “premium pass

through.” Voluntary contributions are

not taxed.

Tax-Free Distributions(For Qualified Medical Expenses)

HSA

Regular Tax*(Non-Medical expenses over age 65)

* Plus a 10% Tax Penalty for Non-Qualified medical expenses before age 65



• Tax-free withdrawals for “qualified medical expenses.”

• Qualified medical expenses include:– Dental treatment such as fillings, braces, extractions– Hearing aids including batteries– Prescription drugs and over-the-counter drugs– Eye exams, eyeglasses and contact lens – Premiums for qualified long term care insurance

(dollar limits may apply) – Out-of-pocket expenses including deductibles,

coinsurance and co-payments– Acupuncture


• Tax-free interest– Interest accrues on the HSA balance.

• Rollover of funds– Unused funds and interest carry over, without limit, from year

to year.

• Portability – The HSA is yours to keep—even when you retire, leave the

Federal government, or change health plans.

• Funds held with a qualified trustee or custodian– Example: Bank, insurance company, Federal credit union.

The FEHB member may select a different trustee or custodian for voluntary contributions.



Other Types of Insurance Coverage

• Accident

• Disability

• Dental care

• Vision care

•Long-term care

•Specified disease or illness

•Insurance that pays a fixed amount per day of hospitalization

•Limited HCFSA

Insurance Allowed with an HSA:

Insurance or Accounts Not Allowed with an HSA:

•Health Care Flexible Spending Account (HCFSA) or a Spouse’s FSA

•Medical coverage by a non-HDHP

•TRICARE or TRICARE For Life

•Any VA benefits used within previous 3 months

•Part A and/or Part B Medicare


Determining the Maximum Allowable Contribution to an HSA Account

• The maximum allowable contribution is determined by the HDHP’s effective date.

If the HDHP is effective… then the maximum allowable contribution

on the first day of the month, will include that month plus the number of months remaining in the year.

after the first day of the month, will be determined by the number of full months remaining in the year (not including that month).


Determining the Maximum Allowable Contribution to an HSA Account

• To calculate the maximum allowable contribution:– Divide the annual deductible by 12– Multiply the result by the number of full

months remaining in the year, after the effective date of the HDHP.


Example 1: Determining the Maximum Allowable Contribution to an HSA Account

• An FEHB member enrolls in an HDHP with an HSA. The annual deductible for Self and Family coverage is $2400.

HDHP Effective Date

Maximum Allowable Contribution

January 8, 2006 1. Divide the deductible ($2400) by 12 = $2400/12

= $200

2. Multiply the result ($200) by the number of remaining months in the year (11) = $200 X 11

= $2200

The maximum allowable contribution is $2200


Example 1: Calculating the Annual Maximum HSA Contribution for FEHB Members Paid Biweekly

An FEHB member enrolls in an HDHP with an HSA. The annual deductible for Self and Family coverage is $2400. The “premium pass through” is $1200 per year. The member’s HDHP enrollment effective date is 1/8/06.

Calculations

Maximum Annual HSA Contribution = $2200 (for 11 full months)

Amount of Health Plans “Premium Pass Through”

$ 100 per month for 12 months

= $1200

Maximum Allowable Voluntary Contribution

$ 2200 (maximum HSA contribution)

$ -1200 (premium pass through)

= $1000




HDHP Effective Date


June 10, 2006 1. Divide the deductible ($2400) by 12

= $2400/12

= $200


= $1200



Example 2: Calculating the Annual Maximum HSA Contribution Mid-Year Enrollment

An FEHB member enrolls in an HDHP with an HSA. The annual deductible for Self and Family coverage is $2400*. The “premium pass through” is $700 per year. The member’s HDHP enrollment effective date is 6/10/06.

Calculations



$100 per month for 7 months

= $700



$ - 700 (premium pass through)

= $ 500

*The member will have to meet the entire deductible.




HDHP Effective Date


January 1, 2006

(for FEHB members who are paid monthly)

1. Divide the deductible ($2400) by 12

= $2400/12

= $200


= $2400



Example 3: Calculating the Annual Maximum HSA Contribution for FEHB Members Paid Monthly

An FEHB member enrolls in an HDHP with an HSA. The annual deductible for Self and Family coverage is $2400. The “premium pass through” is $1200 per year. The member’s HDHP enrollment effective date is 1/1/06.

Calculations



$100 per month for 12 months

= $1200



$ -1200 (the premium pass through)

= $1200


HSA Distribution Process

• HSA trustees or custodians are not required to determine whether HSA distributions are used for qualified medical expenses.

• Individuals who establish HSAs should maintain records of medical expenses to show distributions have been made exclusively for qualified medical expenses should the IRS request them.

• Each HSA trustee will have specific instructions on the qualified distribution of qualified or non-medical expenses.


Part 1: High Deductible Health Plan

Intended to cover serious illness or injury







Or

Health Reimbursement Arrangement – Part 2B


• An HRA is a savings credit that works hand-in-hand with an HDHP.

• The HDHP credits a portion of the health plan premium to the HRA (some plans will credit the annual amount at the beginning of the plan year).

• The HDHP helps determine eligibility. If you are not eligible for an HSA, your health plan will enroll you in an HRA.

• A limited HRA (called a Personal Care Account) is also available with Consumer Driven health plan.

The Basics of a Health Reimbursement Arrangement


The Features of a Health Reimbursement Arrangement

• Tax-free withdrawals for qualified medical expenses only. Must provide documents of medical expense to health plan.

• Carryover of unused credits from year to year.• Credits in an HRA do not earn interest.• Credits in an HRA are forfeited if you switch health plans

or leave Federal employment, except for retirement.• Voluntary contributions to an HRA are not allowed.• HRAs are more limited on tax advantages, forfeitures,

expense distribution, and voluntary contributions than HSAs.


The Differences Between an HSA and HRA

Benefits HSA HRA

Earns Interest? Yes. No.

Allows tax-deductible contributions to your account?

Yes. No.

Allows you to withdraw fund for non-medical purposes?

Yes, subject to tax; and penalties prior to age 65

No.

Portable? Yes. You own your account.

No. Your account is forfeited if you leave the sponsoring health plan or leave the government (except for retirement).


Health Care Flexible Spending Account (HCFSA)Dependent Care Flexible Spending Account (DCFSA)

Will an HCFSA and/or an DCFSA affect the member’s eligibility to an HSA or HRA?

•A DCFSA is permitted with an HCFSA, HSA or HRA.

•An FSAFEDS HCFSA is not allowed with an HSA.

•An FSAFEDS HCFSA is permitted with an HRA.


Features of a Health Reimbursement Arrangement

Credits to the HRA

Credits

Credits are not taxable

Tax-Free Distributions(For Qualified Medical

Expenses)

HRA


Example of an Enrollment, Set-Up, Contribution, and Distribution Process

Open Season election form completed by FEHB member.

HDHP/HSA or HRA set-up begins with receipt of enrollment form.

Trustee/custodian/or health plan paperwork sent to FEHB member.

The first “Premium Pass Through” deposited to the HSA, or credits to HRA by the health plan.

Trustee/custodian paperwork completed by the FEHB member & returned to health plan.

Only medical expenses incurred on or after the HSA or HRA is set-up are reimbursable through distributions.

Enrollee may begin voluntary contributions after the HSA is set-up.

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List of High Deductible Health Plans

Plan Parts of:

Advantage Health Solutions Indiana

Aetna HealthFund Alaska, Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, Nevada, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia

GEHA and Mail Handlers are available nationwide.



Plan Parts of:

Altius Health Plans Utah

AultCare Ohio

Coventry Health Care Delaware, Georgia, Iowa, Kansas, Louisiana, Maryland, New Jersey, Pennsylvania

Fallon Community Health Plan

Massachusetts

Group Health Plan Illinois and Missouri



Plan Parts of:

HealthAmerica Pennsylvania

Independent Health Association

New York

Kaiser Foundation Health Plan of Georgia

Georgia

KPS Health Plan Washington

OSF Health Plans Illinois

Unicare HMO Illinois and Indiana

Universal Care of California

California


Resources: Search the Web, Refer to the 2006 Plan Brochures and 2006 Guides

• FSAFEDS– www.fsafeds.com; 1-877-FSAFEDS(372-3337) or TTY 1-800-952-0450

• OPM Web address for HSAs– www.opm.gov/hsa

• U.S Treasury Department for HSAs– www.ustreas.gov/offices/public-affairs/hsa

• 2006 Guide to Federal Employees Health Benefits Plans and 2006 individual health plan brochures

– http://www.opm.gov/insure/health/index.asp

• For a list of qualified medical expenses that can be reimbursed through an HSA or HRA:

– www.irs.gov/pub/irs-pdf/p502.pdf– Note: Over-the-counter drugs and insurance premiums are qualified medical

expenses.

Documents

Understanding High Deductible Health Plans and the Role of: Health Savings Accounts Health Reimbursement Arrangements UNITED STATES OFFICE OF PERSONNEL