Consumer Driven Health Plan (CDHP) Questions. Health Savings Account (HSA) Questions:

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1 Consumer Driven Health Plan (CDHP) Questions Q1: What is a CDHP? A: A CDHP is a plan with a high deductible and a Health Savings Account component. The goal of such a plan is to create better consumers of health care services. By having to pay more upfront, employees will take a more active role in managing their health (and their families health) and use services wisely. Q2: Can I be covered under my spouse s health plan or flexible spending account and have the CDHP with the HSA at the same time? A: No. If you are enrolled in a CDHP with an HSA, then the CDHP is the only health plan that you can be enrolled in. There are strict IRS rules on CDHP/HSA plans and they don t allow other coverage that pays for services before the deductible is met. Q3: Can I have a dependent enrolled under my coverage in the CDHP w/hsa and that dependent also have separate coverage under my spouse s coverage? A: Yes. You may cover others on your health plan although only tax dependents may use HSA funds on a tax-free basis. (See questions below on HSA accounts.) Health Savings Account (HSA) Questions: Q1: What is an HSA? A: An HSA is a tax-exempt account that is tied to enrollment in a CDHP (described above) and is used to pay or reimburse qualified medical expenses not covered by insurance or otherwise reimbursable. Q2: How do I qualify to participate in an HSA? A: Only eligible individuals can contribute to an HSA. Eligible individuals must meet four requirements: Be covered by a high-deductible plan (CDHP) Not be covered by a plan that pays for coverage before the CDHP deductible is met Not be eligible and enrolled in Medicare Not be able to be claimed as another person s tax dependent Q3: What is the tax treatment of an HSA? A: An HSA is generally exempt from tax (like an IRA), unless it ceases to be an HSA. Contributions made to the HSA by you are before tax. Contributions made by the City are not included in your taxable income, and interest earned on your HSA account is also not includable in gross income while held in the HSA. So, contributions are tax-free, earnings are tax-free, and withdrawals are tax-free if used to pay for qualified medical expenses.

2 Q4: How do I know what qualifying medical expenses' are? A: Expenses stated under Code Section 213(d) of Internal Revenue Code are eligible expenses. These expenses are the same expenses that are eligible under the Medical Flexible Spending Account. Click here to view the IRS rule on qualified medical expenses. Q5: Can I withdraw money from my HSA for expenses that are not qualified medical expenses? A: Yes, you can; however, you will be subject to income tax as well as a 20% penalty on the amount you withdraw. Q6: Are there rules around who I can use the HSA funds for even if they are for qualified medical expenses? A: Yes. Per the IRS rules, the HSA funds must be used to pay for qualified medical expenses of the account holder (employee), spouse, or tax dependent. Therefore, you can have CDHP coverage for certain individuals (such as a domestic partner or a non-tax dependent child under 26) but if you use your HSA funds for their qualified medical expenses you would be subject to income tax as well as a 20% penalty on the amount you withdraw. Q7: Can I use my HSA funds to pay for health insurance after I separate/retire? A: You can use your HSA funds for COBRA premiums; health insurance premiums while receiving unemployment benefits, and age 65 Medicare (except for Medicare supplemental insurance). Q8: What happens to the HSA account if I m eligible for Medicare? A: Once you are eligible for Medicare, you can no longer make new contributions to your HSA account. However, any funds that you withdraw from your HSA account for qualified medical expenses (including Medicare premiums) continue to be tax free. Q9: What is the maximum amount that I can put in my HSA account each year? A: The maximum annual tax-deductible HSA contribution for 2015 is $3,350 per individual or $6,650 per family. This is a combination of the employer and employee contribution amounts. Maximum contribution levels are tied to an annual index, and the maximum contribution amount may vary from year to year. It is not anticipated the contribution maximums would be reduced from the level they are at today. Employees who are age 55 and older can contribute an additional $1,000 ( catchup ) annually.

3 Q10: I understand that the City will make a contribution into my HSA account in How much will that be? A: For Non-Union employees, the City will make a contribution of $1,500 for employees with single coverage and $3,000 for family (not per person). For HSA contribution purposes, a family is defined as two or more people. The $1,500 or $3,000 amount will be deposited at the first of the year to assist in funding the account for early expenses. For eligible Union employees, the City will make a contribution of $500 for employees with single coverage and $1,000 for family coverage. Q11: I m confused about the additional lump sum incentive that the City is offering. Can this be explained? (For Police Guild and Police Command only) A: If you are enrolled in the CDHP for 2015, in addition to the $500 or $1000 that will be deposited into your HSA, you will also receive a lump sum cash payment on your January 25 th check ($1,000 for single coverage and $2,000 for dependent coverage). This payment is taxable income although you could increase your HSA pre-tax deduction to offset the payment. Q12: I m a part-time employee. Do I get the full contribution and/or incentives or a pro-rated portion? A: You will get the full incentive. The contributions and/or incentives are not prorated for part-time employees. Q13: If I sign up for single coverage under the CDHP but later in the year I get married and switch to family coverage under the CDHP, do I then receive the higher contribution and/or incentive rates? A: Yes, but on a pro-rated basis. Let s say you received the $500 City contribution to your HSA and $1,000 lump sum cash incentive for your single coverage in January and then you change to family coverage in July. You would receive an additional $250 deposited into your HSA account and a $500 lump sum payment (1/2 of the additional contributions and/or incentives). Q14: Do I get the incentives if I switch to the CDHP mid-year because of a qualifying event? A: Yes, but on a pro-rated basis. If you switch to single coverage on the CDHP in July, you would receive $250 deposited into your HSA account and a $500 lump sum payment (1/2 of the full year contributions and/or incentives). Q15: How often can I change my voluntary contribution to my HSA account? A: Pre-tax payroll deductions may be changed as often as each pay period. A deduction form must be submitted to HR by the 15 th of the month for the 25 th paycheck and by the end of the month for the 10 th paycheck.

4 Q16: If I am continuing in the CDHP for 2015 do I need to complete a new HSA contribution form? A: No. Your current election will carry forward unless you want to change it. Q17: What happens to the HSA if I leave the City and/or elect not to be covered by one of the CDHPs after one or more years enrolled in the plan? A: The HSA balance remains yours, even the contributions made by the City. You can continue to use the account to pay for qualified medical expenses. In order for you to contribute money to the account again, you must be enrolled in a high deductible plan defined by the IRS. Q18: Can I contribute to both the HSA and a Flexible Spending Account? A: If you are enrolled in the CDHP/HSA then you will not be able to contribute to the City s Medical Flexible Spending Account; however, you will still be eligible to contribute to the Dependent Flexible Spending Account (childcare). Q19: Can I contribute a lump sum after-tax contribution to my HSA, not through a pre-tax deduction from my paycheck, and then take an above-the-line deduction on my federal income taxes? A: Yes. Please keep in mind that there is a maximum that may be contributed to the HSA. This will be a combination of the tax-free employer and employee contributions and any after-tax contribution you might make on your own. Q20: Can I transfer money from other accounts into my HSA, e.g. from my VEBA or ICMA Retiree Health Savings Account? A: Unfortunately, the IRS regulation that would allow these rollovers from Health Reimbursement Account plans expired on December 31, 2011, so rollovers are no longer permitted. HSA Bank information Q1: What bank does the City use for HSA accounts? A: The City uses Bank of America to administer the HSA accounts. Q2: How do I access my funds? A: Bank of America will provide a debit card for your use. Each service provider will be different so you may be able to pay for services upfront with your debit card or you may have to wait until the provider bills insurance and then pay the balance. If you pay for services out-of-pocket, you may reimburse yourself with the HSA funds either through transferring funds between bank accounts or request a check from Bank of America.

5 Q3: How do I set up my HSA account? A: After open enrollment is over, you will receive an with instructions on how to set up your account. You will want to complete this by late-december to allow time to set up the account and receive your debit card so you can access the account in January. Q4: How soon will my HSA payroll deduction be available for use in my HSA account? A: It takes approximately five (5) business days for funds to be applied to your account.