Welcome To Consumer Driven Health Care aka Individual Health Savings Accounts

1. Welcome To Consumer Driven Health Care aka Individual Health Savings Accounts P.L. No. 108-173, section 223

2. 06/27/03—H.R. 1 passes House 216-215 06/27/03—S. 1 passes Senate 76-21 07/14/03—Medicare Conference begins 11/21/03—Conferees complete work 11/22/03—House passes final bill 220-215 11/25/03—Senate passes final bill 54-44 12/08/03—President Bush signs Medicare bill into law How HSA Came to Pass

3. HSA Definition of HSA • For Eligible Individuals • Tax-exempt trust or custodial account • To pay qualified medical expenses • If covered by High-Deductible Health Plan • Not covered by non-HDHP (some exceptions) • Not entitled to Medicare (generally under 65) • May not be covered as Dep on another’s • taxes. Define HDHP Can Network Plan Qualify? Exceptions Can Self-Insured Plan Qualify?

4. HSA Definition of HSA • Deductible & OOP Requirements • $1,000 Deductible minimum for Individuals • $5,000 OOP Maximum for Individuals • $2,000 Deductible Minimum for Families • $10,000 OOP Maximum for Families • Not including 1st Dollar Preventive Care • Can have higher deductibles and lower out-of-pocket expense caps • You may not have a plan with office visit co-pays, or an Rx plan with co-pays. Define HDHP Can Network Plan Qualify? Exceptions Can Self-Insured Plan Qualify?

5. HSA Definition of HSA • Network Plans Qualify • Has richer In-Network Benefits • Out of Network Benefits can Exceed limits • OON Benefits not used in determining Contribution Limits • In-Network Deductible used in Determining Contribution Limits Define HDHP Can Network Plan Qualify? Exceptions Can Self-Insured Plan Qualify?

6. HSA Definition of HSA • Can Still Have: • Workers Compensation Plan Coverage • Automobile Insurance Coverage • Other Property Insurance • Tort Liability Insurance Coverage • Accident Insurance • Dental Insurance • Vision Insurance • Long Term Care Insurance • Daily Hospital Fixed Amount per Day • Specified Disease or Illness Coverage Define HDHP Can Network Plan Qualify? Exceptions Can Self-Funded Plan Qualify?

7. HSA Definition of HSA • Self-Insured Plans • Employer sponsored Self-Insured Plans Qualify • Must meet Deductible and OOP requirements • Cannot have a deductible for preventive care Define HDHP Can Network Plan Qualify? Exceptions Can Self-Insured Plans Qualify?

8. HSA • Contributions • Both Employee and Employer can Contribute • Family Members may Contribute on each others behalf-if they are both eligible individuals • Actual annual HSA contribution limit must be computed on a monthly basis for each month that the individual is eligible • HSA contributions by employees can be made on a pre-tax basis through Section 125 of the Code (cafeteria plan) • ER’s must make same dollar amount or same % of the deductible contributions on behalf of all EE’s in same coverage category • There is a 35% excise tax of amount contributed for violations Who Can Contribute? How to Start HSA Who is Qualified Trustee or Custodian?

9. HSA • HSA Start-Up • Begins January 1, 2004 or later • Can start mid-year • Same as starting IRA or Archer MSA • No permission from IRS needed • Can establish HSA without Employer involvement • Must use Qualified Trustee or Custodian Who can Contribute? How to Start HSA Who is qualified Trustee or Custodian?

10. HSA • Qualified Trustee/Custodian • Defined in section 408(n) • Any Insurance Company • Any Bank or similar institution • See Regulation 1.408-2(e) relating to non-bank trustees • Does not have to be same institution that provides the HDHP Who can Contribute? How to Start HSA Who is Qualified Trustee or Custodian?

11. HSA • Maximum Contributions • $2,650 (up to $220.83 per Month) • $5,250 (up to $437.50 per Month) • Catch-up Contribution allowed if age 55 + • No earnings requirements to contribute • Earnings grow tax free • All HSA contributions made on behalf of • individual are aggregated for limits • calculation • If individual begins 6/1/05 the annual limit is • $1,545.81 ($220.83 x 7) • Catch-up contribution limit is $600 in 2005 for • individuals and spouses between • ages 55 & 65 • Catch-up amount will increase $100 annually • until it reaches $1,000 in calendar year 2009 Maximum Contribution Earnings Requirements Distributions

12. HSA • Earnings Requirements • None • Can contribute for 2005 thru April 15th, 2006 • Contributions must be made in cash-not stock • or other property • Contributions are “above-the line” deductible • whether the individual itemizes or not • If you may be claimed as a dependent you • may not deduct contributions to an HSA • There is a 6% penalty if you over-contribute • Can make it right before deadline (skip 6%) • Employer contributions not subject to FICA or • FUTA or Railroad Retirement Tax Act Maximum Contribution Earnings Requirements Distributions

13. HSA • Distributions • Permitted at any time • Any amount not used to pay for qualified medical expenses of the account beneficiary, spouse or dependents is includable in gross income and is subject to an additional 10% tax on amount includable—unless distributions made after account beneficiary’s death, disability, or attaining age 65 • Burden of proof for proper use of distributions is on the account beneficiary not the trustee, custodian or the employer • Upon death any remaining balance in HSA becomes the property of named beneficiary • This does not include distributions made for final qualified medical expenses made within one year of death Maximum Contribution Earnings Requirements Distributions

14. HSA Other Matters • Other Matters • Discrimination rules demand that ER contribute same amount or same percentage of the deductible for all participating EE’s • HSA can be offered under a cafeteria plan thus contributions are then made on a salary-reduction basis • HSA’s are not subject to COBRA, but you can pay for your COBRA with HSA dollars • May use debit, credit or stored-value cards to receive distributions • Rollover contributions from Archer MSA’s and other HSA’s are permitted

15. Pre-tax contributions/deposits tax-free Earnings tax-free Distributions/expenditures not taxable upon withdrawal for appropriate IRS allowed medical expenses Better treatment than a 401(k) plan Several Big Tax Advantages

16. Sales Expectations? How do you feel about HSA’s? Who do you think will buy them? HSA’s

17. HSA • Results to date • 70% of purchasers are over are 40 • 77% are families with children • One-third make less than $50,000/year • http://press.fortishealth.us.fortis.com/fh/press-release-cm/newsroom/hastert Who buys HSAs Initial Sign up Aetna Results

18. HSA • Early Results • 438,000 people sign up for HSAs in first 9 • months. • 30% were previously uninsured. • www.ahip.org Who Buys HSAs Initial Sign up Aetna Results

19. HSA • Early Results • Use of preventive services up by 23% • 5.5% decrease in Rx costs and a 7% increase • in overall generic utilization • 3.7% medical cost increase, compared to • double-digit increases for a similar • population • Medical costs fell by 11% for one full- • replacement plan sponsor • http://www.aetna.com/news/2004/pr_2004D622.htm Who Buys HSAs Initial sign up Aetna Results

20. HSA • NBGH Survey • 8% of large employers surveyed now offer HSAs • Another 18% plan to offer HSAs next year • 47% are considering them for future • 75% of employers say, “HSAs are effective vehicles to engage employees more in managing their health,” 49% “aren’t sure if they will help lower costs”. Watson Wyatt Booz Allen Hamilton

21. HSA • Future of HSAs • HSAs will begin a new movement toward • building personal financial security • Expect consumers to demand “package • pricing” for high cost services • “CDHPs and HSAs will begin to restructure • both the healthcare world and the financial • services world in profound ways.” Watson Wyatt Booz Allen Hamilton