Savings Account BasicsFebruary 24, 2021

Agenda• What is a High Deductible Health Plan?• What is a Health Savings Account (HSA)?• HSA Eligibility Rules• Flexible Spending Accounts & HSAs• HSA Contribution Requirements• HSA Tax Implications• Qualified Medical Expenses• Retirement/Investment Opportunities• Beneficiary• Tools & Resources

High Deductible Health Plans (HDHPs)

What is a Qualified High DeductibleHealth Plan (HDHP)?

• A Qualifying HDHP is a medical plan with annualdeductibles and out-of-pocket limits that complywith IRS requirements

• The IRS adjusts these requirements every year• 2021 Limits

– Deductible cannot be lower than $1400single/$2800 family

– Out-of-Pocket Maximums cannot be higher than$7,000 single/$14,000 family

What is a Qualified High DeductibleHealth Plan (HDHP)?

• HDHPs cannot pay benefits until the plan’sdeductible is met for the plan year

• Exception: Preventive Care• No office visit copays, prescription copays or

telemedicine copays permitted until thedeductible is satisfied

Why do you need to have aQualified HDHP?

• The IRS only allows pre-tax deposits into aHealth Savings Account if you are enrolled ina Qualified High Deductible Health Plan

• CMU offers a HDHP through BCBS andMESSA – both are qualified HDHPs

Health Savings Accounts

What is a Health Savings Account (HSA)?

• By enrolling in a HDHP, you are eligible tocontribute tax-free money into a HSA

• Account is fully owned by the employee• Bank account is automatically set up with

Health Equity when enrolled in CMUQualified HDHP

HSA Advantages

• HSA deposits earn interest• Once the HSA balance exceeds $2,000

investment options are available• Like a 401(k), money “grows” over time• No use it or lose it rule – HSAs are designed

to follow you into retirement• You own it. You control it.

HSA Responsibility

• Employee shoulders most of theresponsibility related to HSAs– Must be covered by a QHDHP– Understand if eligible– Verify using funds for qualified medical expenses– Take additional steps at tax-filing time to report

contributions/distributions– Maintain documentation of everything in case

audited

Health Savings AccountEligibility Rules

HSA Eligibility ProvisionsHSA Account Holders CANNOT contribute to a HSA:• If enrolled in Medicare (Any part: A,B,D or Medicare Advantage)• If enrolled in TriCare• If you or your spouse is enrolled in a General Purpose Health FSA

(Limited Purpose FSA is allowed)• If enrolled in other health insurance that is not subject to the

HDHP requirements (i.e. a spouse’s traditional plan or non-HDHPmedical plan). Except for “excepted” or “permitted” insurance

• If claimed as a dependent on someone else’s tax return (otherthan your spouse)

• If received Veteran Affair benefits during the past 3 months

Health Flexible Spending Accounts(FSAs) & HSAs

Healthcare Flexible Spending Accounts(FSAs)

• Two Types of Healthcare FSAs– General Purpose Health FSA– Limited Purpose Health FSA

• Plan Year: July 1 through June 30• Allow pre-tax dollars to be contributed to a

health care FSA to be used by you orqualified dependents

Flexible Spending Accounts

• Minimum Amount: $100 annually• Maximum Amount: $2,750 annually• Elected Amount is equally divided into your

pay periods• Full amount available on your effective date• Changes are only allowed if a qualifying life

status event• “Use-it or Lose-It” Account (except for rollover)

Flexible Spending Accounts - Rollover

• Funds over $550 at the end of the plan yearare forfeited per IRS Regulations– Carryover of $550 is allowed into the next plan

year for active employees– Terminated or retired employees

• Claims must be received within 90 days following theend of employment

• If COBRA is elected, claims must be incurred prior tothe end of employment date

Flexible Spending Account Eligibility

• Dependents include– Legal Spouses– Children to the end of the calendar year in which

they turn 26, if the child is a tax dependent

General Purpose FSA

• General Purpose Health FSA should bepaired with the CMU BCBS PPO Health Plansor the MESSA Choices Health Plans– Qualified Expenses include

• Medical and prescription deductibles, coinsurance orcopays

• Dental expenses• Vision expenses

Limited Purpose FSA

• Limited Purpose Health FSA should bepaired with the CMU HDHP only– Qualified Expenses include

• Dental expenses, including orthodontia• Vision expenses

Flexible Spending Accounts (FSA)Impact on HSAs

• General Purpose Health FSAs that cover allmedical, dental and vision expenses maymake you ineligible for an HSA– If $0 balance at the end of the plan year (6/30) -

no effect on HSA eligibility– If $550 carryover into a General Purpose FSA, it

will make the individual ineligible for the entireyear; must transfer to a Limited Purpose FSA

Flexible Spending Accounts (FSA)Impact on HSAs

• Limited Purpose Health FSA is allowed with aHSA– Coverage is limited to dental, vision or orthodontia

care– General Purpose FSA unspent carryover monies can

be used during a 90 day run-out period (90 daysfollowing end of plan year), for medical, dental orvision expenses prior to end of the previous benefityear. After the run-out period, any unspent carryover funds will be applied to a Limited Purpose FSA

Choosing the HSAIf electing a CMU HDHP and you want an

HSA, must elect in same tab!

Choosing the HSA• Each year during OE, you must enter your

HSA contribution amount – this is notautomatic

• If you miss the election during OE, paperform available

Choosing the Right FSA• Make sure you

choose the right FSA• Plan Type drop down choices:

General Purpose or LimitedPurpose Health Care FSA

• FSA election is binding forentire plan year, unlessbenefits status change event.

• You can not remove or changeFSA election type andcontribution after enrollment.

• IMPORTANT: Make sure yourHealth plan election and FSAelection are compatible.

Health Savings AccountContribution Requirements

HSA Contribution Limits

• The IRS sets annual contribution limits• Limits are pro-rated if not covered for a full

year• 2021 (calendar limits)

– $3,600 for self-only– $7,200 for family– $1,000 Catch-up contribution allowed for

employees age 55+

HSA Contribution Rules

• Contributions that exceed the maximumpermitted are not deductible

• An excise tax of 6% is imposed onaccountholders for excess contribution limits

• Individuals can withdraw excesscontributions before end of tax year to avoida penalty

HSA Contribution Rules

• Employees and Spouses that are bothcovered under separate HDHPs (familycoverage) and have separate HSAs:– One family limit applies per tax family– Employee and Spouse can each contribute into

their own HSA but combined contributionscannot exceed the family maximum of $7,200

Who can Contribute into the HSA?

• Employees– Pre-tax contributions to their HSA each payday– after-tax contributions directly to their HSA

account during the year – deductible at tax time

• Employers can also make tax-freecontributions directly to the employee’s HSA

Affects on HSA Contributions

Eligibility to contribute based on accountholderstatus only:• Spouse/dependent child(ren) can have other

comprehensive coverage and it does notaffect accountholder eligibility to contribute

• Spouse/dependent child(ren) can haveMedicare and it will not affect ability tocontribute

Health Savings Account Tax Implications

HSA Tax Savings

HSA Tax Reporting• Since the HSA is a tax-advantaged account, the IRS

requires reporting on how you use the account on yourincome tax return using Form 8889.

• Health Equity provides 2 tax statements each year 1099-SA and 5498-SA– Form 1099-SA: Reports distributions from your account. You

are not required to include the amounts as income unlessthey were used for non-qualified expenses. The form ismailed to you by the end of January each year and is neededto file your tax return.

– Form 5498-SA: Reports contributions and rollovers to youraccount. This form is also delivered by the end of Januaryeach year and is NOT needed to file your taxes. The form isupdated and available in the member portal in May each year.

HSA Tax Reporting

• Form 8889 – your tax preparer will use your1099-SA, W-2 and other documents tocomplete and submit your IRS Form 8889with your annual tax return. Form 8889 isused to calculate your HSA deductionamount and report distributions.

Qualified Medical Expenses

Expenses must be for QualifiedIndividuals

• Expenses for accountholder, legal spouse, and tax dependentchildren (even if not enrolled in HDHP)

• Dependent child definition different than required coveragedefinition under ACA– Under ACA, offer coverage to dependent children up to age 26– Tax dependent under HSAs (Section 152 definition-post-WFTRA)

• Qualifying child or qualifying relative• For children, age requirements, same principal place of residence

requirement and dependents do not provide over half their support

• A dependent child can be covered under HDHP but expensesmay not be tax-favored reimbursements for parent’s HSA

• If not a tax dependent of parent, child can set up HSA

Qualified/Non-QualifiedMedical Expenses

QualifiedMedical Expenses

(see IRS publication 502)– Medical expenses– Contact lenses– Dental/Orthodontia care– Eyeglasses and eye surgery– Long-term care expenses– Prescription medicines

Non- QualifiedMedical Expenses

• Dancing lessons• Elective cosmetic surgery• Hair removal• Teeth whitening• Health club fees• Medicines and drugs from

other countries

Non-Qualified Distributions or Expenses• Included in gross income and taxable• 20% excise penalty applies in many cases for non-qualified expenses• Excise penalty does not apply:

– Over age 65– Distributions following an accountholder’s death

• Accountholder required to name a beneficiary in the event ofdeath

• If legal spouse is beneficiary, the ownership of the account istransferred to the spouse and the spouse can continue to usethe account for eligible services

• If not legal spouse, account funds distributed & becomestaxable income to beneficiary

– Distributions made if account owner disabled

Retirement/Investment Opportunities

• Once your account balance reaches $2,000 you canincrease your earning potential by investing any fundsover that amount in mutual funds

• You can manage your investments on your own or letHealth Equity Advisor do all of the work. Advisor, for afee, can provide web-based guidance designed todiversify your portfolio and can manage the trading ofmutual funds for you. For more information contacthealthequity.com/Advisor.

Compare HSA to 401KHSA 401(k)

Assets Investable Investable

Contributions Not taxed FICA taxed (7.65%)

Earnings Not Taxed Not taxed

Distribution forqualified medicalexpenses

Not taxed Taxed (as ordinaryincome)

Maximize your savings:2021 contribution limits are $3,600 individual and $7,200 for families.Members age 55+ can contribute an additional $1,000.

Medicare Enrollment Affect• You cannot contribute into a HSA if you are enrolled

in Medicare– Electing Social Security (SS) Retirement Benefits

automatically enrolls you in Medicare Part A & B– To continue contributing into a HSA, you cannot begin

receiving SS payments– Your HSA contribution maximum must be prorated based

on the number of months you were covered by the HDHPand NOT covered by Medicare Part A or B.

• Your HSA money is yours to use, even after you stopcontributing.

What happens to my HSA when I retire?

• HSA is a bank account owned by you• No action required; Health Equity will mail

you a letter explaining you have anindividually owned account

• You will begin paying a minimal monthlyadministration fee

Beneficiary/Account Holder Death• Important to designate a beneficiary

– To update/add beneficiary; contact CustomerService or go online to www.heathequity.com

– If no beneficiary listed, legal spouse– If no beneficiary and no legal spouse, must provide

proof (executor, personal representative or successor of decedent’sestate)

• Upon account holder’s death; Form to complete– Legal Spouse: HSA account can be paid out or

transferred to an individually owned account– Other beneficiary: Account balance paid out

Need Help?

Health Equity Tools & Resources• CMU HR Benefits & Wellness Portal – Click on Health Savings Accounts• Member Portal at www.healthequity.com• Media Library (videos)/Webinars• Documents/Forms• HSA Contribution Calendar• Mobile App

– On-the-go access and history– Photo documentation– Send payments & reimbursements– Manage debit card transactions– Initiate claims and view status

Health Equity Contact Information

• Customer Service Phone Number– BCBS Members: (877) 284-9840– MESSA Members: (877) 218-3432

• Email online at the help center