Understanding a Health Savings Account

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1 From Roper Insurance & Financial Services Understanding a Health Savings Account Type of Coverage Minimum Annual Deductible Individual $1,300 for 2015 $1,300 for 2016 Family $2,600 for 2015 $2,600 for 2016 Maximum Annual Out-ofpocket $6,450 for 2015 $6,550 for 2016 $12,900 for 2015 $13,100 for 2016 What is a health savings account? Otherwise known as an HSA, a health savings account can be funded with your taxexempt dollars. Dollars from the account can help pay for eligible medical expenses not covered by an insurance plan, including the deductible, coinsurance and even health insurance premiums in some cases. A health savings account can be funded with your taxexempt dollars. How does an HSA work? Part 1: Qualifying High Deductible Health Insurance Plan Who is eligible for an HSA? Anyone who is: Covered by a high deductible health plan (HDHP); Not covered under another medical plan that is not an HDHP; Not entitled to (eligible for AND enrolled in) Medicare benefits; or Not eligible to be claimed on another person s tax return. What is a high deductible health plan (HDHP)? A high deductible health plan is a plan with a minimum annual deductible and a maximum out-of-pocket limit as listed below. These minimums and maximums are determined annually by the Internal Revenue Service (IRS) and are subject to change. Provides health care benefits after the deductible has been met. Part 2: Health Savings Account Pays for out-of-pocket expenses incurred before the deductible is met. What are the steps in an HSA? 1. HSA account holder or eligible family member and/or someone else funds the individual HSA account. 2. Individual seeks medical services. 3. Medical services are paid by HDHP, subject to deductible and coinsurance. This Know Your Insurance article is provided by Roper Insurance & Financial Services and is to be used for informational purposes only and is not intended to replace the advice of an insurance professional. Visit us at Zywave, Inc. All rights reserved.

2 Understanding a Health Savings Account 4. Individual may seek reimbursement from HSA account for amounts paid toward deductible and coinsurance. 5. Deductible and out-of-pocket maximum fulfilled. 6. Individual may be covered for all remaining eligible expenses.* The HDHP can provide preventive care benefits without the required minimum deductible. *Subject to plan design; check your HDHP Summary Plan Description. When do I use my HSA? After visiting a physician, facility or pharmacy, your medical claim will be submitted to your HDHP for payment. Your HSA dollars can be used to pay your out-of-pocket expenses (deductibles and coinsurance) billed by the physician, facility or pharmacy, or you can choose to save your HSA dollars for a future medical expense. You may also be able to use an HSA debit card to access your HSA funds, if your HSA custodian or trustee allows it. You may use your HSA for non-medical expenses. However, HSA amounts that are used for non-medical expenses are taxable as income to you and are generally subject to an additional 20 percent penalty. What is a deductible? It is a set dollar amount determined by your plan that you must pay out-of-pocket or from your HSA account before insurance coverage for medical expenses can begin. How much can I contribute to an HSA? The annual HSA contribution limits for 2015 are: $3,350 for individual coverage and $6,650 for family coverage The annual HSA contribution limits for 2016 are: $3,350 for individual coverage and $6,750 for family coverage Individuals age 55 or older may be eligible to make a catch-up contribution of $1,000. What if I enroll in an HSA in the middle of the year? Your HSA contributions are generally determined on a monthly basis. However, if you enroll in an HSA mid-year, you are allowed to make a full year s contribution, provided you are eligible on Dec. 1 of that year and you remain eligible for HSA contributions for at least the 12-month period following that year. Why should I elect an HSA? 1. Cost Savings Triple tax benefits o HSA contributions are excluded from federal income tax o Interest earnings are tax-deferred o Withdrawals for eligible expenses are exempt from federal income tax Reduction in medical plan contribution Unused money is held in an interest-bearing savings or investment account Note: Many states have not passed legislation to provide favorable state tax treatment for HSAs. Therefore, amounts contributed to HSAs and interest earned on HSA accounts may be included for state income tax purposes. 2. Long-term Financial Benefits Save for future medical expenses. Funds roll over from year to year. 3. Choice You control and manage your health care expenses. You choose when to use your HSA dollars to pay your health care expenses. You choose when to save your HSA dollars and pay health care expenses out of pocket.

3 Understanding a Health Savings Account You decide whether to use your HSA dollars to pay for non-medical expenses and incur the additional taxes. For more information about health savings accounts, or for help getting started, contact Roper Insurance & Financial Services at or today.

4 From Roper Insurance & FInancial Services Health Savings Accounts A health savings account (HSA) is an account funded to help you save for future medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment. Who Can Have an HSA? Any adult can have an HSA if you: Have coverage under an HSA-qualified, high deductible health plan (HDHP) Have no other health coverage (certain types of insurance, such as specific injury or accident, disability, dental care, vision care or long-term care, are permitted) Are not enrolled in Medicare Cannot be claimed as a dependent on someone else s tax return Contributions to your HSA can be made by you, your employer or both. However, the total contributions are limited annually. If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal income tax return. Alternatively, some employers will allow you to make your HSA contributions as tax-free salary reductions. Contributions to the account must stop once you are enrolled in Medicare. However, you can still use your HSA funds to pay for medical expenses tax-free. HDHPs You must have coverage under an HSAqualified high deducble health plan to open and contribute to an HSA. Generally, this plan will not cover first-dollar medical expenses, and must have a deductible of at least (for 2015/2016): Single coverage: $1,300/$1,300 Family coverage: $2,600/$2,600 In addition, annual out-of-pocket expenses under the plan (including deductibles, copays and coinsurance) cannot exceed (2015/2016 limits): Single coverage: $6,450/$6,550 Family coverage: $12,900/$13,100 In general, the deductible must apply to all medical expenses (including prescriptions) covered by the plan. However, plans can pay for preventive care services on a firstdollar basis. Preventive care can include routine prenatal and well-child care, child and adult immunizations, annual physicals, mammograms and more. A health savings account (HSA) is an account funded to help you save for future medical expenses. HSA Contributions You can make a contribution to your HSA each year that you are eligible. You can contribute no more than (2015/2016 limits): Single coverage: $3,350/$3,350 Family coverage: $6,650/$6,750 Individuals ages 55 and older can also make additional catch-up contributions of up to $1,000 annually. Determining Your Contribution Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. Individuals who are eligible to contribute to an HSA in the last month of the taxable year are allowed to contribute an amount equal to the annual HSA contribution amount provided they remained covered by the HSA for at least the 12- month period following that year. Contributions can be made as late as April 15 of the following year. Using Your HSA You can use money in your HSA to pay for any qualified medical expense permitted under federal tax law. This includes most medical care and services, dental and vision care. This article is to be used for informational purposes only and is not intended to replace the advice of an insurance professional. Visit us at Zywave, Inc. All rights reserved.

5 Health Savings Accounts Generally, you cannot use your HSA to pay for medical insurance premiums, except specific instances, including: Any health plan coverage while receiving federal or state unemployment benefits COBRA continuation coverage after leaving employment with a company that offers health insurance coverage Qualified long-term care insurance For HSA holders who are age 65 or older, any deductible health insurance (for example, retiree medical coverage) other than a Medicare supplemental policy. You can use your HSA to pay for medical expenses for yourself, your spouse or your dependent children, even if your dependents are not covered by your HDHP. Any amounts used for purposes other than to pay for qualified medical expenses are taxable as income and subject to an additional 20 percent penalty. Examples include: Medical procedures and expenses not considered qualified under federal tax law Over-the-counter drugs and medications obtained without a prescription (except insulin) Health insurance premiums, unless specifically described above Medicare supplement insurance premiums Expenses not health-related. After you turn 65, the 20 percent additional tax penalty no longer applies. If you become disabled and/or enroll in Medicare, the account can be used for other purposes without paying the additional penalty. Advantages of HSAs Security Your HSA can provide a buffer for unexpected medical bills. Affordability In most cases, you can lower your health insurance premiums by switching to health insurance coverage with a higher deductible. Flexibility You can use your HSA to pay for current medical expenses, including expenses that your insurance may not cover, or save your funds for future needs, such as: Health insurance or medical expenses if unemployed Medical expenses after retirement (before Medicare) Out-of-pocket expenses when covered by Medicare Long-term care expenses and insurance Savings You can save the money in your HSA for future medical expenses and grow your account through investment earnings. Control You make the decisions regarding: - How much money you will put in the account - Whether to save the account for future expenses or pay current medical expenses - Which medical expenses to pay from the account - Which financial institution will hold the account - Whether to invest any of the money in the account - Which investments to make Portability Accounts are completely portable, meaning you can keep your HSA even if you: Change jobs Change your medical coverage Become unemployed Move to another state Change your marital status Ownership Funds remain in the account from year to year, just like an IRA. There are no use it or lose it rules for HSAs. Tax Savings An HSA provides you triple tax savings: 1. Tax deductions when you contribute to your account 2. Tax-free earnings through investment 3. Tax-free withdrawals for qualified medical expenses

6 Health Savings Accounts What Happens to My HSA When I Die? If you are married, your spouse becomes the owner of the account and can use it as if it were his or her own HSA. If you are not married, the account will no longer be treated as an HSA upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes). Opening Your HSA Banks, credit unions, insurance companies and other financial institutions are permitted to be trustees or custodians of these accounts. Other financial institutions that handle IRAs or Archer MSAs are also automatically qualified to establish HSAs. Learn More To learn more about health savings accounts or how to get started, contact Roper Insurance at or today.

7 From Roper Insurance & Financial Services 10 Reasons to Love a Health Savings Account With the soaring cost of health care, many consumers are turning to the health savings account (HSA) as a way to combat rising expenses. This financial option is quickly growing in popularity and has the potential to save you a significant amount of money. The HSA offers consumers a manageable way to take control of their health expenses. It encourages the consumer to make healthier lifestyle choices, better health carerelated financial decisions, and to invest and save money over time for future medical needs. Consumer driven health care has the power to change a person s financial future while also contributing to positive change in America s health care system as a whole. Here are 10 reasons to love an HSA: HSAs fund health care needs An HSA funds health care expenses in conjunction with a high deductible health plan (HDHP), a requirement to set up an HSA. The HSA is a savings account that secures pretax dollars in a fund for future medical needs, and helps meet the deductible of the HDHP, should something happen that takes medical expenses beyond what is affordable. HSAs use pretax funds HSAs may be set up through employers or through financial institutions like banks, insurance companies or third-party administrators. Contributions to HSAs through employers are set up as pretax investments. HSA accounts created through financial institutions are designed so that consumers can take an above-the-line deduction on personal taxes. One benefit for many is that taxable income is decreased, so fewer taxes need to be paid out. HSAs come with significant premium savings over traditional insurance plans High-deductible health plans come with much lower premiums than a traditional plan. This is especially apparent to individuals who pay premiums all year long but don t go to the doctor or use medical services very often. For these people, paying the premium can feel like throwing money out the window. Based on premium savings alone, some HSA consumers see 20 to 40 percent savings each year. The HSA offers consumers a manageable way to take control of their health expenses. HSAs offer expanded coverage options for consumers Unlike typical insurance plans that have a highly negotiated list of covered medical products or services, HSAs allow many additional health-related expenses. Doctors visits, hospital expenses and prescriptions are covered, but coverage also extends to some over-the-counter drugs with a prescription, dental and vision services, and certain non-traditional treatments such as acupuncture and deep tissue massage. HSAs allow negotiating power to secure discounts on medical services Because an HSA is a cash account, it empowers consumers with an option to negotiate pricing on many medical services, which can lead to substantial savings on medical expenses. For example, standard imaging services can vary widely in price depending on location and payment method. An MRI, for example, can cost anywhere from $400 to $1,800 for the exact same service, so the price is often negotiable. This Know Your Benefits article is provided by Roper Insurance & Financial Services and is to be used for informational purposes only and is not intended to replace the advice of an insurance professional. Visit us at , Zywave, Inc. All rights reserved.

8 10 Reasons to Love a Health Savings Account HSAs offer control and choices regarding health care needs With these plans, consumers have unlimited choices regarding services, service providers and medical expenditures. With an HSA, one can go to the doctor of his or her choice. HSAs are portable If a consumer switches jobs, the HSA account follows. And, unlike traditional insurance plans, consumers do not lose unused funds in these accounts at the end of the year. The consumer owns the account and all the benefits that come from its good management. age 65 the account can continue to be used for medical expenses with no penalties, but withdrawals for other purposes are also possible and often face fewer penalties than withdrawals from an IRA. HSAs create a health-conscious community and put market forces to work that drive down health costs for everyone Because of the incentive to save and earn money, consumers are encouraged to become educated on health care and medical services to become active participants in the control of their health and wellness. Providers of medical products and services are forced into a healthier competition for consumers. Additionally, there is a personal incentive to make smarter decisions about the use of the health care system, which decreases the likelihood of its abuse. Overall, it becomes a more efficient system and the costs of medical services decrease to meet the new market realities. HSAs create financial incentives for managing health care expenses Occasionally there are unfortunate cases where a catastrophic event occurs and emergency medical services are required that do not allow time to shop around, but the majority of medical transactions are mundane and predictable. Since the HSA is a consumer-controlled cash account, HSA participants are encouraged to consider if a particular expense is worth the cost or if a cheaper alternative (like a generic medication instead of name brand) might work equally well. HSAs are a powerful tool for retirement investing Over time, a relatively healthy person or someone who is a decent financial manager can save a good deal of money and investment earnings in an HSA. Consumers who are between the ages of 55 and 65 also have the opportunity to make additional catch-up contributions to the fund. After

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