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BlueSolutions for HSA features our IRS-qualifying high-deductible health plan combined with a health savings account through one of our preferred consumer spending account vendors London Health Administrators or Wells Fargo Health Benefits Services.
A High-Deductible Health Plan, or HDHP, is a health insurance plan with specific rules for coverage set by the IRS that meets the requirements of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 to have a specified deductible. A qualifying HDHP has a minimum annual deductible and out-of-pocket maximums for individuals and families, a combined medical and pharmaceutical deductible, and an aggregate deductible. An HDHP enables consumers to enroll in a Health Savings Account (HSA).
A health savings account (HSA) is a tax-favored trust or custodial account established exclusively for the purpose of paying for current and/or future medical expenses. An HSA is similar to an IRA with one major difference: Employees can access the funds at any time to pay for qualified medical expenses.
There are several tax benefits for HSA participants:
To enroll in an HSA, employees must meet the following requirements:
Yes, the “213 (d)” list is published by the IRS and includes, but is not limited to: doctors’ office visits, hospital care, dental care, vision care, prescription drugs, copayments, deductibles, and coinsurance.
Yes, employees can spend HSA funds on non-medical expenses. However, in doing so, they’ll be required to pay income tax on the amount withdrawn, plus a 20 percent penalty for a non-medical withdrawals made prior to age 65.
Yes, each year, total contributions to employees’ HSAs cannot exceed the annual maximum amount allowable for individuals and families (adjusted annually). Individuals between the ages of 55 and 65 can make additional annual “catch-up” contributions (adjusted annually). Please refer to IRS Publication 969 for specific contribution amounts.
A High-Deductible Health Plan may cover certain types of preventive care even if it does not count toward the deductible. Here’s a list of these services:
Employees can accumulate unused funds in their HSAs from one year to the next. In addition, they may use their HSA funds to pay for qualified expenses from a previous year as long as they were incurred after the HSA was established.
Yes, employees may take their HSA funds with them when they change employers or leave the workforce.
Anyone can contribute to an HSA account as long as the owner of the account is eligible through their enrollment in a high-deductible health plan. Total contributions from all sources are limited to the annual maximum.
HSA contributions are no longer limited to the annual deductible of a high-deductible health plan (HDHP). Contributions are limited only by the statutory maximums of $3,100/individual and $6,250/family.
Example: Bob (under age 55) is enrolled from January 1, 2012 to December 31, 2012 in an HDHP with a $1,200 deductible. Bob can contribute $3,100 in 2012.
Individuals who become covered by an HDHP after January are allowed to contribute up to the full annual limit, even if they were only eligible for a portion of the calendar year. However, an individual must be covered in an HDHP in December of that year, and remain covered in an HDHP through December of the next year.
Example: Bob (under age 55) is enrolled from July 1, 2012 through December 31, 2012 in an HDHP. He has individual coverage with a $3,000 deductible and remains eligible through December 31, 2013. Bob’s annual contribution amount for 2012 is $3,100.
An FSA grace period does not disqualify individuals from establishing an HSA if they have a zero balance on the last day of the plan year. If individuals do not have a zero balance on the last day of the plan year, they cannot establish an HSA until after the 2½-month grace period has expired, unless they roll over the FSA funds into an HSA.
Example 1: Bob participates in a calendar year FSA with a 2½ month grace period ending March 15 of the following year. He receives reimbursement for his full election amount on December 15, 2011 and has a $0 balance on December 31, 2011. Since he has a $0 balance, he can establish an HSA on January 1, 2012 instead of April 1, 2012. The grace period does not make him ineligible for an HSA.
Example 2: Bob participates in a calendar year FSA with a 2½-month grace period ending March 15 of the following year. Bob does not receive reimbursement for his full election amount by December 15, 2011, and has a balance in his FSA on December 31, 2011. Bob cannot establish an HSA until after the 2½-month grace period has expired on March 15, 2012, unless he rolls over the FSA funds into an HSA.
A one-time, tax-free trustee-to-trustee transfer of IRA funds to an HSA is permitted. This transfer is limited to the HSA maximum annual contribution amount and counts towards the annual HSA contribution limit.
Effective September 21, 2006, individuals can transfer the balance remaining in an FSA or HRA account (or the balance on the date of the transfer, whichever is less) to an HSA. The funds must be transferred within 2-1/2 months after the end of the health HRA or health FSA's plan year and result in a zero balance in the health HRA or health FSA account. Only one qualified HSA distribution is allowed for each health HRA or health FSA account.
The Secretary of Treasury is required to announce the cost-of-living adjustments applicable to HSAs by June 1 of each year. This is effective for tax years beginning after 2011.
Yes, but the rule has changed. Previously, employers who contributed to employees’ HSAs had to make “comparable contributions” (same amount or same percentage of deductible) to all “comparable participating employees” (full-time, part-time, former employees). But employers are now allowed to make contributions to HSAs on behalf of non-highly compensated employees in higher amounts (or higher percentages of deductibles) than to highly compensated employees.
Retroactivity on High Deductible Health Plans (HDHP)
Retroactive enrollment in a health plan can impact whether a high-deductible health plan (HDHP) is compatible with a health savings account (HSA).
When a group is enrolled in a BCBSRI health plan, the claims are paid according to the existing benefit plan until we process the request for a plan change. According to IRS guidelines, paying a claim before the deductible makes the HDHP no longer HSA-compatible. It also jeopardizes the tax-favored status of the HSA. An HDHP can be set up retroactively if the group or member is not active on another BCBSRI plan, but claims cannot be paid until the HDHP is active.
BCBSRI must receive all member information by the 15th of the month preceding the group’s anniversary date for the plan to become effective the next month. If information is received after the 15th of the month, the effective date will be the 1st of the following month. Here are two examples for a company with a renewal date of November 1, 2011:
Example 1
We received group set-up information on October 15, 2011.
The effective date for the HDHP would be November 1, 2011.
Example 2
We received group set-up information on October 16, 2011.
The effective date for the HDHP would be December 1, 2011.
Note: If the 15th of the month is on a weekend or a holiday, the deadline to receive group set-up information would be the next business day.
Visit www.treas.gov for specific information on HSAs.
*The HDHP and/or the HSA may be subject to ERISA, COBRA, HIPAA, and other regulations, as well as tax requirements. Consult an attorney or tax or benefit consultant to ensure compliance with all applicable requirements. The HSA is not an insurance product and is not administered by BCBSRI. Contact your selected HSA custodian or trustee for information about your HSA. The frequently asked questions above do not include details of the entire legislation regarding HSAs. For more information about the provisions listed, visit the U.S. Department of Treasury Web site at www.treasury.gov/offices/public-affairs/hsa. In addition, check helpful IRA publications, at www.irs.gov/formspubs/index.html, including Publication 969, which describes various types of consumer spending accounts, and Publication 502, which describes qualified medical and dental expenses.
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