HSAs Made Easy: Learn the Essentials & Protect Your Savings from Mistakes

HSAs Made Easy: Learn the Essentials & Protect Your Savings from Mistakes

Health savings accounts (HSAs) have become a vital part of many employers’ benefits packages, offering employees a powerful tool to manage healthcare expenses while benefiting from tax advantages. However, managing HSAs goes beyond just facilitating contributions. It also involves understanding and addressing mistakes with distributions that employees might encounter.

This article delves into the basics of HSAs, common distribution mistakes, and discusses how employers can assist employees in correcting these errors.

HSA Overview

HSAs are tax-advantaged savings accounts available to individuals enrolled in High Deductible Health Plans (HDHPs). They allow employees to set aside pre-tax dollars to cover qualified medical expenses, providing a triple tax benefit: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. Contributions to HSAs can come from both employees and employers, with annual contribution limits for individual and family coverage set by the IRS.

Common Mistakes in HSA Distributions

Despite the best intentions, mistakes in HSA distributions can occur. Common errors include:

  • Using funds for nonqualified expenses: Employees may inadvertently use HSA funds for expenses that do not qualify as medical expenses under IRS guidelines.
  • Overdrawing funds: Employees may withdraw more than necessary from their HSAs, leading to unintended tax consequences.
  • Exceeding contribution limits: Employees may contribute more than the IRS annual maximum, resulting in tax consequences.
  • Inadequate recordkeeping: Poor recordkeeping can make it difficult for employees to track HSA transactions and verify the eligibility of expenses.

Supporting Employees in Correcting Distributions

As an employer, you can support employees in correcting mistaken HSA distributions in several ways:

  • Educate employees: Provide comprehensive education and training on HSA rules and regulations, including eligible expenses, contribution limits, and the consequences of nonqualified distributions. Offer resources such as workshops, webinars, and informational materials to help employees understand how to use their HSAs effectively.
  • Encourage recordkeeping: Emphasize the importance of keeping detailed records of HSA transactions and medical expenses. Encourage employees to save receipts and documentation for all qualified medical expenses, as well as records of HSA contributions and distributions.
  • Offer guidance and resources: Ensure employees know where to turn for help if they have questions or need assistance with their HSAs. Provide access to knowledgeable benefits administrators, financial advisors, or tax professionals who can offer guidance on correcting mistaken distributions and navigating HSA rules.
  • Communicate proactively: Regularly communicate with employees about HSA-related updates, such as contribution limit adjustments, changes to regulations, and reminders about best practices for managing their accounts. Use multiple channels—email, intranet, and employee meetings—to ensure that information reaches all employees.

Conclusion

HSAs provide employees with a valuable opportunity to save for healthcare expenses and offer significant tax benefits. As an employer, it’s essential to support employees in understanding and managing their HSAs effectively. By providing education, resources, and guidance on correcting mistaken distributions, employers can help their workers maximize their HSA benefits while minimizing potential pitfalls. Together, employers and employees can navigate the complexities of HSAs and achieve greater financial wellness.

Benefits 101: What Is an HDHP?

Benefits 101: What Is an HDHP?

In today’s world of complex health insurance options, High Deductible Health Plans (HDHPs) have become increasingly popular. But with a name like “high deductible,” it’s natural to have questions. Let’s break down the basics of HDHPs:

What is an HDHP?

An HDHP is a health insurance plan with a higher deductible than traditional plans. This means you pay more out of pocket for covered medical services before your insurance kicks in and starts sharing the costs. However, HDHPs often come with lower monthly premiums.

Here’s a breakdown of the key features:

  • Higher deductible: This is the amount you’re responsible for paying before your insurance starts covering costs. HDHP deductibles are typically in the range of $1,600 for individuals and $3,200 for families (as of 2024).
  • Lower monthly premiums: Since you’re shouldering more upfront costs, the monthly premium for an HDHP is usually lower than a traditional plan.
  • Possible Health Savings Account (HSA) compatibility: Many HDHPs allow you to open a Health Savings Account (HSA). HSAs are tax-advantaged accounts where you can save money specifically for qualified medical expenses. You contribute pre-tax dollars to the HSA, which reduces your taxable income, and the funds grow tax-free. You can then use the HSA funds to pay for deductibles, copays, and other qualified medical expenses, tax-free.

Pros of HDHPs:

  • Lower monthly premiums: This can be a significant advantage, especially for young and healthy individuals who don’t anticipate needing frequent medical care.
  • Tax advantages of HSAs: HSAs offer a triple tax benefit – contributions are tax-deductible, funds grow tax-free, and qualified withdrawals for medical expenses are tax-free.
  • Potential for cost savings: If you’re generally healthy and have good budgeting skills, an HDHP can lead to overall lower healthcare costs by combining lower premiums and tax-advantaged savings in an HSA.

Cons of HDHPs:

  • Higher out-of-pocket costs: With a high deductible, you’ll be responsible for a larger chunk of medical bills before your insurance kicks in. This can be a burden if you have unexpected medical needs.
  • Not suitable for everyone: If you have chronic health conditions or anticipate needing frequent medical care, an HDHP might not be the best choice due to the high out-of-pocket costs.
  • Requires financial discipline: To truly benefit from an HSA, you need to be able to contribute and save money on a regular basis.

Is an HDHP Right for You?

There’s no one-size-fits-all answer. Consider these factors:

  • Your overall health: If you’re generally healthy and have a low risk of needing frequent medical care, an HDHP could be a good option.
  • Your budget: Can you comfortably afford to pay a higher deductible if needed?
  • Your financial discipline: Are you comfortable managing and contributing to an HSA?
  • Your future health needs: Do you anticipate needing frequent medical care in the future?

Make an informed decision before enrolling in an HDHP to ensure that it’s the right choice for you, your family and your medical needs.  But remember, you can always re-evaluate your health insurance plan during open enrollment periods.

Compliance Recap May 2024

Compliance Recap May 2024

PREPARE NOW TO PAY THE PCORI FEE

The Patient-Centered Outcomes Research Institute (PCORI) fee funds research that evaluates and compares health outcomes, clinical effectiveness, and the risks and benefits of medical treatments and services. Effective through 2029, the IRS treats this fee like an excise tax, applied to all covered lives, including employees, retirees, spouses, and dependents. The fee is due on July 31, 2024.

For plan and policy years ending between October 1, 2023, and September 30, 2024, the PCORI fee is $3.22 per covered life, reflecting a 7.33% increase.

For plan and policy years ending between October 1, 2022, and September 30, 2023, the fee was $3.00 per covered life.

Employers with self-funded medical plans or applicable health reimbursement arrangements (HRAs) must use Form 720 to fulfill their reporting obligations and pay PCORI fees.

Calculating the PCORI fee requires employers to determine the average number of lives covered under a self-insured health plan using one of the IRS-approved methods.

EMPLOYER CONSIDERATIONS

Employers should be prepared to file Form 720 and pay the fee by July 31. Refer to the IRS Form 720 instructionsFAQs, and chart of applicable coverage types.

IRS RELEASES 2025 LIMITS FOR HDHPS AND HSAS

The IRS released the inflation-adjusted amounts for 2025 health savings accounts (HSAs), excepted benefit health reimbursement arrangements (EBHRAs), and high-deductible health plans (HDHPs).

2024 and 2025 HSA and HDHP Limits

2024 2025
Self-Only Family Self-Only Family
HSA Maximum Contribution $4,150 $8,300 $4,300 $8,550
HSA Maximum Catch-up Contribution $1,000 $1,000 $1,000 $1,000
HDHP Minimum Deductible $1,600 $3,200 $1,650 $3,300
HDHP Maximum Out-of-Pocket Expense
(In Network)
$8,050 $16,100 $8,300 $16,600

 

Maximum EBHRA Contribution Limits

2024   $2,100
2025   $2,150

EMPLOYER CONSIDERATIONS

Employers offering these benefits must update all plan communications, open enrollment materials, and other relevant documentation to ensure that participants and beneficiaries are adequately informed about the new limits.

HHS FINALIZES SECTION 1557 NONDISCRIMINATION REGULATIONS

The U.S. Department of Health and Human Services (HHS) released new regulations under Section 1557 of the Affordable Care Act (ACA), known as the “Final Rule” nearly two years after the proposed rule was published. The regulations are set to become effective on July 5, 2024, though some provisions will be phased in later. The Final Rule reinstates certain provisions from the previous regulations and introduces additional clarifications and guidelines.

Section 1557 of the ACA aims to prevent discrimination in health programs or activities receiving federal financial assistance. The new regulations under the Final Rule extend coverage to all products offered by a health insurance issuer if any of these products receive federal financial assistance. This expansion will bring a significant number of entities under the purview of Section 1557 for the first time. Those entities may include:

  • Insurers offering qualified health plans through the health exchange marketplace, large group market plans, excepted benefit plans, self-insured group health plans.
  • Third-party administrators (TPAs) and pharmacy benefit managers (PBMs) if any part of their business is operated by an insurer subject to Section 1557 or if they are sub-recipients of federal financial assistance.
  • Insurance agents or brokers paid by a covered entity receiving federal financial assistance.
EMPLOYER CONSIDERATIONS

The Final Rule significantly broadens the definition of a covered entity under Section 1557, extending its reach beyond the scope of the 2020 Rule. Consequently, insurers, TPAs, PBMs, insurance brokers, and other related entities need to review their business models to determine if they are now subject to Section 1557. If covered, these entities must ensure that their practices, policies, and products comply with the new regulations.

HHS updated its Frequently Asked Questions to offer further guidance on implementing the Final Rule.

MEDICAL DEBT CANCELLATION ACT INTRODUCED

On May 8, legislators introduced the Medical Debt Cancellation Act (S.4289), a proposal aiming to eliminate current medical debt in the United States. The Act involves the federal government paying off medical-related debts under specific conditions. Its multiple components, which would be phased in over time, seek to eradicate existing medical debt and limit the ways consumers can incur future debt. Currently in draft form, the Act is subject to amendment and further clarification before moving to a congressional vote.

A central provision of the Act is the establishment of a federal grant program administered by the Department of Health and Human Services (HHS) to fund the payment, or “cancellation,” of medical debts held by hospitals, provided the debt is out-of-pocket, unpaid, and owed for services rendered before the bill’s enactment. Excluded from the program are amounts covered by federal health care programs or other insurance plans. Hospitals would apply for these grants, with HHS prioritizing safety net hospitals that agree to cancel debts owed by low-income and vulnerable populations.

The Act also mandates that within one year of enactment, federally funded health care programs must eliminate medical debt collections. HHS would report annually to Congress on the progress of the debt forgiveness program, which would conclude once all eligible medical debt is canceled. Additionally, the Act proposes amendments to the Fair Debt Collection Practices Act, prohibiting the collection of pre-enactment medical debt and creating a private right of action for individuals harmed by violations.

While the Act aims to cancel existing medical debt, it does not ban future medical debt but imposes new billing and debt collection requirements on healthcare providers. These include assessing eligibility for charity care or financial assistance 45 days before the payment due date and providing related information to patients. The Act prohibits 501(c)(3) hospitals from charging uninsured patients more than generally billed amounts and bans interest on outstanding payments. Amendments to the Fair Credit Reporting Act would prevent credit reporting agencies from including medical debt information. The Act, still in the proposal stage, draws attention due to its potential broad impact.

GOVERNOR LAMONT SIGNS LEGISLATION EXPANDING CONNECTICUT PAID SICK DAYS LAWS

Governor Ned Lamont has signed new legislation expanding Connecticut’s paid sick leave laws to include a broader range of workers. The updated laws will ensure that more employees have access to paid sick leave, addressing gaps in the current system that covers only specific retail and service occupations. The goal of the legislation is to help retain young workers in the state, enhance employee productivity, and support economic growth by reducing the financial hardships of missing work due to illness.

Starting January 1, 2025, the law will apply to almost every occupation, excluding seasonal and certain temporary workers. The threshold for employer coverage will be reduced in phases: employers with at least 25 employees by January 1, 2025; those with at least 11 employees by January 1, 2026; and all employers by January 1, 2027. Additionally, the definition of a family member for sick leave purposes will be broadened, and the reasons for using paid sick leave will include public health emergencies.

EMPLOYER CONSIDERATIONS

Employers should prepare to update existing documents to reflect the new legislation.

QUESTION OF THE MONTH

Q: We have a client that never filed their 2022 plan year D1 and P2 files for RxDC reporting (assuming the carrier filed the D2-D8). Was the $100-a-day penalty in place for this filing in 2023?

A: There was penalty relief for 2020 and 2021, but not for 2022 filings. The penalty is found in Internal Revenue Code Section 4980D. The good faith relief came from the Departments of Labor, Health and Human Services, and Treasury in the form of FAQ 56 issued on December 23, 2022.

©2024 United Benefit Advisors

2018 Amounts for HSAs; Retroactive Medicare Coverage Effect on Contributions

IRS Releases 2018 Amounts for HSAs
The IRS released Revenue Procedure 2017-37 that sets the dollar limits for health savings accounts (HSAs) and high-deductible health plans (HDHPs) for 2018.
For calendar year 2018, the annual contribution limit for an individual with self-only coverage under an HDHP is $3,450, and the annual contribution limit for an individual with family coverage under an HDHP is $6,900. How much should an employer contribute to an HSA? Read our latest news release for information on modest contribution strategies that are still driving enrollment in HSA and HRA plans.
For calendar year 2018, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage.
Retroactive Medicare Coverage Effect on HSA Contributions
The Internal Revenue Service (IRS) recently released a letter regarding retroactive Medicare coverage and health savings account (HSA) contributions.
As background, Medicare Part A coverage begins the month an individual turns age 65, provided the individual files an application for Medicare Part A (or for Social Security or Railroad Retirement Board benefits) within six months of the month in which the individual turns age 65. If the individual files an application more than six months after turning age 65, Medicare Part A coverage will be retroactive for six months.
Individuals who delayed applying for Medicare and were later covered by Medicare retroactively to the month they turned 65 (or six months, if later) cannot make contributions to the HSA for the period of retroactive coverage. There are no exceptions to this rule.
However, if they contributed to an HSA during the months that were retroactively covered by Medicare and, as a result, had contributions in excess of the annual limitation, they may withdraw the excess contributions (and any net income attributable to the excess contribution) from the HSA.
They can make the withdrawal without penalty if they do so by the due date for the return (with extensions). Further, an individual generally may withdraw amounts from an HSA after reaching Medicare eligibility age without penalty. (However, the individual must include both types of withdrawals in income for federal tax purposes to the extent the amounts were previously excluded from taxable income.)
If an excess contribution is not withdrawn by the due date of the federal tax return for the taxable year, it is subject to an excise tax under the Internal Revenue Code. This tax is intended to recapture the benefits of any tax-free earning on the excess contribution.
By Danielle Capilla
Originally Posted By www.ubabenefits.com