2019 Employee Benefits Webinar Series... · 2019-10-18 · Christopher Beinecke, J.D., LL.M...

Christopher Beinecke, J.D., LL.M

National Compliance Leader

October 17, 2019

2019 Employee Benefits Webinar SeriesHealth Savings Accounts

1. Basic Premise

2. What is a Qualified High Deductible Health Plan?

3. No Other Disqualifying Coverage

4. What is Health Savings Account?

5. Contributions and Distributions

6. Final Thoughts and Questions

2

Agenda

Marsh & McLennan Agency LLC

• An individual is eligible to make and receive health savings account

(HSA) contributions if (and only if):

• The individual is enrolled in a qualified high deductible health plan (HDHP);

• The individual has no other disqualifying coverage that can provide benefits

before the applicable statutory minimum HDHP deductible is met; and

• The individual cannot be claimed as a tax dependent on another individual’s

federal personal income tax return

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Note: Ineligibility only affects my ability to make or receive HSA contributions. It does not affect

my ability to use existing HSA funds (assuming properly made).

HSA Eligibility – The Basic Premise

Marsh & McLennan Agency LLC 4

What is a Qualified

High Deductible Health Plan?

5

In-Network 2019 2020

Self-Only Family Self-Only Family

HDHP Minimum Deductibles $1,350 $2,700 $1,400 $2,800

HDHP OOP Maximum Amounts $6,750 $13,500 $6,900 $13,800

• Can be fully insured or self-insured coverage

• Subject to Affordable Care Act (ACA) requirements

• Subject to IRS requirements for in-network minimum deductibles and

maximum out-of-pocket amounts

• Individual must satisfy the deductible before the plan provides most benefits

• Intended to encourage consumer-driven healthcare and price-comparing

Amounts are indexed annually. If using an embedded individual deductible for family coverage, the minimum embedded deductible must equal the

family minimum statutory deductible ($2,800 for 2020). Under the ACA, a self-only OOPM limit also applies to family coverage for non-grandfathered

plans.

Qualified High Deductible Health Plan


• Preventive care (addressed in more detail on following slides)

• Disease management, EAP, and wellness if they do not provide significant

medical care

• Workers’ compensation or medical payments from property/casualty

coverage

• Specified disease or illness coverage

• Fixed indemnity coverage for hospitalization

• Accident, disability, dental, vision, or long-term care

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Permitted Other Care/Coverage

Permitted Preventive Care

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Preventive care generally does not include services or treatment for an existing illness, injury, or condition The following are services described in existing guidance and is not intended to be an exhaustive list.

Existing Preventive Care Safe Harbor List

Annual physicals, including necessary testing and

diagnostic procedures

Routine prenatal care

Adult immunizations Routine well-child care

Child immunizations Obesity weight-loss programs

Cancer screening Tobacco cessation programs

Infectious diseases screening Heart and vascular diseases screening

Mental health conditions screening Substance abuse screening

Metabolic, nutritional, and endocrine conditions screening Osteoporosis screening

Obstetric and gynecologic conditions screening Pediatric conditions screening

Vision disorders screening Hearing disorders screening

Preventive services mandated by the ACA

Expansion of Permitted Preventive Care

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IRS Notice 2019-45 permits – but does not require – HDHPs to cover the following additional services as preventive on or after July 17, 2019. This list is exhaustive.

Services for Specified Conditions* For Individuals Diagnosed with

Angiotensin Converting Enzyme (ACE) inhibitors Congestive heart failure, diabetes, and/or coronary

artery disease

Anti-resorptive therapy Osteoporosis and/or osteopenia

Beta-blockers Congestive heart failure and/or coronary artery disease

Blood pressure monitor Hypertension

Inhaled corticosteroids Asthma

Insulin and other glucose lowering agents Diabetes

Retinopathy screening Diabetes

Peak flow meter Asthma

Glucometer Diabetes

Hemoglobin A1c testing Diabetes

International Normalized Ration (INR) testing Liver disease and/or bleeding disorders

Low-density Lipoprotein (LDL) testing Heart disease

Selective Serotonin Reuptake Inhibitors (SSRIs) Depression

Statins Heart disease and/or diabetes


No Other Disqualifying Coverage


• Health care flexible spending accounts (HCFSAs) and health

reimbursement arrangements (HRAs) that can reimburse for medical

expenses are generally disqualifying other coverage

• If employee’s spouse has general purpose HCFSA or HRA coverage, it

disqualifies the employee

• It doesn’t matter if the employee submits any claims for reimbursement or

not…it’s the ability to do so that matters

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Spending Accounts


1. Offer a limited-purpose HCFSA or HRA that may only be used to

reimburse dental and vision expenses; or

2. Offer a post-deductible HCFSA or HRA that only reimburses

general medical expenses after the individual has met the minimum

statutory annual HDHP deductible; or

3. Combine the two

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Note: The minimum statutory annual HDHP deductible might be less than the HDHP’s annual

deductible. For example, the 2020 minimum individual statutory deductible is $1,400, while an

HDHP’s 2020 individual deductible might be set at $1,800.

HCFSAs & HRAs – HSA Compatibility


• Run-Out Period – the time period a participant has after the end of the plan

year to submit claims that were incurred during the plan year

• Grace Period – the time period a participant has after the end of the plan

year to submit claims that were incurred during the plan year OR during the

grace period

• Carryover Provision – provision permits participants to carry over the lesser

of:

• The unspent HCFSA account balance as of the end of the plan year; or

• $500

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HCFSA Design Considerations


• Run-Out Period – Employee can submit claims incurred in the prior plan

year

• Does not interfere with HSA eligibility at the start of the new plan year

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PY1: Employee enrolls in a calendar year general purpose HCFSA with a run-out period of 3 months.

PY 2: Employee enrolls in an HDHP effective January 1st and is HSA-eligible January 1st.

Run-Out Period

January 1 January 1 April 1

General Purpose HCFSA

HSA Eligible

HCFSA and HSA Interaction


• Grace Period – Employee has $0 HCFSA balance at the end of plan year

• Does not interfere with HSA eligibility

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PY 1: Employee enrolls in a calendar year general purpose HCFSA with a grace period of 2 ½ months.

Employee’s HCFSA balance on December 31st is $0.

PY 2: Employee enrolls in an HDHP effective January 1st and is HSA-eligible on January 1st.

Grace Period



HSA Eligible



• Grace Period – Employee has HCFSA balance at the end of the plan year

• Interferes with HSA eligibility until the first of the month following the grace period

PY 1: Employee enrolls in a calendar year general purpose HCFSA with a grace period of 2 ½ months.

Employee has an HCFSA balance on December 31st.

PY 2: Employee enrolls in an HDHP effective January 1st and is HSA-eligible on April 1st.

HSA Eligible

Grace Period




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• Carryover – Employee can carry over dollars to a general purpose HCFSA,

and HCFSA does not allow for carryover to a limited purpose HCFSA or

waiver of the carryover

• Interferes with HSA eligibility for the entire year

PY 1: Employee enrolls in a calendar year general purpose HCFSA with a carryover feature. HCFSA does

not allow carryover to limited purpose HCFSA or waiver of carryover.

PY 2: Employee enrolls in an HDHP effective January 1st and is HSA-ineligible for the entire year if the

employee has a carryover.

January 1 January 1

General Purpose HCFSA Carryover to GP HCFSA

No HSA Eligibility


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• Carryover – Employee can carry over dollars to a limited purpose HCFSA

• Does not interfere with HSA eligibility

PY 1: Employee enrolls in a calendar year general purpose HCFSA with a carryover feature to a limited

purpose HCFSA.

PY 2: Employee enrolls in an HDHP effective January 1st and is HSA-eligible for the entire year.

January 1 January 1

General Purpose HCFSA Carryover to LP HCFSA

HSA Eligible


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• Carryover – Employee can carry over dollars to a general purpose HCFSA,

but the HCFSA allows the employee to waive the carryover

• Does not interfere with HSA eligibility for the entire year if employee waives the

carry over

PY1: Employee enrolls in a calendar year general purpose HCFSA with a carryover provision. Employer gives the

employee the opportunity to waive the carryover.

PY2: Employee waives the carryover, enrolls in an HDHP effective January 1st, and is HSA-eligible for the entire year.

January 1 January 1


HSA Eligible


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• Medicare – An individual who is actually enrolled in Medicare has

disqualifying other coverage for the first month Medicare coverage is

effective (mere eligibility is not a conflict)

• Medicaid – An individual enrolled in Medicaid has disqualifying other

coverage for the first month Medicaid coverage is effective

• TRICARE – An individual enrolled in TRICARE has disqualifying other

coverage for the first month TRICARE coverage is effective

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Medicare, Medicaid, and TRICARE


If not limited to permitted care or after the HDHP deductible is met (unrealistic),

the issue is whether these provide “significant medical care”

• Clinics – Unless limited to first aid, dental/vision (unlikely), or preventive

services, these will generally cause an HSA conflict unless participants pay

the fair market value (FMV) for the services

• EAPs – These generally escape due to low visit limits

• Telemedicine – This is generally an issue unless participants pay FMV

• There is some “magic” to $45/visit

20

Note: While some still claim the EAP exception applies to telemedicine, this is a myth.

An employer can increase its HSA seeding contribution as an offset.

Clinics, EAPs, and Telemedicine


• VA Medical Benefits – Generally disqualifying coverage for the month in

which VA medical benefits are received and the 2 months thereafter

• This conflict does not apply for care received in connection with a service-related

disability

Example: Employee is covered by an HSA-qualified HDHP. Employee receives VA medical benefits

unrelated to a service-related disability in March.

January 1

VA Conflict

HSA Eligible

March 1 June 1

HSA Eligible

21

Veterans Affairs (VA) Benefits


• Illinois, Maryland, Oregon, Vermont, and Washington enacted laws requiring

health insurers to cover certain male contraceptive services on a first dollar basis

before an insured has met the plan’s annual deductible

• This is problematic for insured plans attempting to qualify as HDHPs that enable

participants to contribute to HSAs

• The IRS released IRS Notice 2018-12 (March 2018), which indicates male

contraceptive coverage will not qualify for an exception from the first dollar

coverage rule as a preventive service or under another exception

• Temporary relief from enforcement until 2020 to give states time to review their insurance

mandates and/or give participants time to prepare for the loss of HSA eligibility

Spoiler Alert: If nothing changes, fully insured HDHPs will not be available in those States beginning in 2020.

State Male Contraception Coverage Mandates

22


What is a

Health Savings Account?

• A health savings account (HSA) is an individually owned account that

receives tax advantages

Earnings in the HSA are not

included in gross income

Tax-Free Growth

2

Employees put pre-tax dollars

into an HSA up to a statutory

cap, lowering the employees’

income subject to federal

taxes

Pre-Tax Contributions

1

HSA’s Triple-Tax Advantage

24

Code Section 213(d) qualified

medical expenses, including

preventive care per 2019

Regulations

Tax-Free Distributions

3

Note: An individual could also contribute directly to the bank/trustee after-tax and take a tax deduction on his or her federal personal income tax return using IRS Form 8889. This is an above-the-line deduction.


Contributions: Putting Money In

Distributions: Taking Money Out

Contributions – Statutory Limits

2019 2020


HSA Contribution Limit* $3,500 $7,000 $3,550 $7,100

HSA Catch-Up Contributions $1,000 $1,000 if spouse

is HSA-eligible

$1,000 $1,000 if spouse is

HSA-eligible

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Aggregation: All contributions made or

received to an individual’s HSA count towards

the annual contribution limit, with the

exception of rollovers.

Catch-Up Rule: If the employee and spouse are

both over 55 years old, and each have their own

HSAs, they each can make catch-up contributions

of $1,000 to their respective accounts.

Amounts are indexed annually

Spouses: If either spouse has HDHP family coverage, both

spouses are treated as having family coverage and are limited

to the annual HSA family contribution limit split between them.

This limit is divided equally unless they agree on a different

division. Domestic partners are not limited in this way.


Switching Tiers on April 1, 2019

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Example: Employee is enrolled in family coverage for all

of January through March and in employee-only coverage

for all of April through December. The blended annual

HSA contribution limit would be determined as follows:

Total for all 12 months = $52,500Step1

Annual HSA Contribution Limit:

$52,500/12 = $4,375Step 2

Contributions – Medicare Entitlement

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Employee is enrolled in family coverage in a qualified HDHP. The spouse is enrolled in Medicare. Is the employee allowed to contribute the family maximum?

2019 2020


HSA Contribution Limit $3,500 $7,000 $3,550 $7,100

HSA Catch-Up Contributions $1,000 $1,000 if spouse is

HSA-eligible

$1,000 $1,000 if spouse is

HSA-eligible

Yes, the contribution limit is determined by the tier in which the employee is enrolled. It is not relevant that any enrolled spouse or dependent be HSA eligible. It is not even relevant that the individuals qualify as the employee’s tax dependent (although the employee cannot use an HSA for tax free reimbursements for a non-tax dependent).

Employee Contributions

29

• Contribution limits

• Generally pro-rated monthly with eligibility determined as of the first day each month

• Employees can change their HSA contributions at least once a month without the need for a

qualifying life event (subject to what can be reasonably administered)

• Last Month Rule

• If an individual is HSA eligible on December 1st, the individual can make or receive

contributions up to the full annual limit provided the individual remains HSA eligible through

the end of the following calendar year

• If HSA eligibility is lost during this period, the individual’s annual HSA contribution limit is

retroactively pro-rated monthly which usually leads to adverse tax consequences

Employer Contributions

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• “Must be present to win”

• Consider imposing a time limit on employees establishing an HSA to receive HSA

contributions

• Employer can stagger employer contributions and limit them to participants as of that date

(e.g. annually, quarterly)

• Determine form of employer HSA seeding contributions

• Fixed based on tier?

• Matching?

Other Considerations

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• Communicate HSA eligibility basics to employees

• Tax Code nondiscrimination rules

• If employees can contribute pre-tax through cafeteria plan, employer contributions are also

deemed to be made through cafeteria plan and Tax Code Section 125 nondiscrimination rules

apply

• Otherwise, employer contributions are subject to HSA comparability rules which will require

uniform contributions by tier of coverage

• Problem if HSA contributions (employee and employer) disproportionately favor highly

compensated employees

• Matching contributions somewhat more likely to lead to disproportionate contributions without

relatively low cap on match


Correcting mistaken contributions can be tricky

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Employee was Never HSA Eligible

• If individual was never HSA eligible, the employer can recover the funds

• This option is unavailable if the employee was eligible for even one month of the year

• The bank or trustee may not be cooperative

Administrative or Process Error

• Must be clear and convincing documentary evidence of an administrative error

• If employer is satisfied that threshold is met, employer can ask bank or trustee to return the money

• Goal is to put all parties in the same position from before the mistake was made

Employee is No Longer HSA Eligible

• Individuals often continue to contribute to their HSA after losing eligibility

• In order to avoid an excise tax, employee needs to make a corrective distribution

Mistaken Contributions


• Excess contributions are subject to a 6% excise tax

• This includes amounts made by employee and employer that were unable to be

recouped

• In order to avoid the excise tax, the employee needs to take a corrective

distribution

• An individual can avoid a 6% excise tax if he or she receives a taxable distribution

of any excess contributions (plus earnings) before his or her individual federal

income tax deadline (plus extensions) for the year of the excess contribution

• The individual should notify the bank or trustee of the need for a corrective

distribution

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Excess Contributions

• Employee can receive distributions from the HSA even if not eligible to make or receive additional contributions (i.e. not HSA eligible)

• Tax free distributions are limited to qualifying medical expenses for the account holder, spouse, and tax dependents

• Excludes most domestic partners

• Excludes most adult children (this is different from ACA standard)

• Qualifying medical expenses include COBRA, deductible medical coverage for those 65+, coverage while receiving unemployment, and long-term care

• Distributions for non-qualifying medical expenses are included in the individual’s taxable income and are subject to a 20% penalty (no penalty if account holder is 65+)

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Distributions


Final Thoughts and Questions

35

Questions?

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2019 Employee Benefits Webinar Series... · 2019-10-18 · Christopher Beinecke, J.D., LL.M...

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