Providing an HSA, FSA, or HRA Health Plan for your Employees

When open enrollment hits annually, it is not uncommon for employers to feel exasperated when staring down a list of acronyms such as HSA, FSA and HRA. As it should go without saying, the most common first thought is, “What does any of this mean?” Even the most seasoned experts have difficulty with understanding the complexities of various care options. That’s why in this installment of CenterStage, Kelley Bell, a Group Health Benefits Consultant at Saxon Financial, is here to break down the ‘alphabet soup’ that is HSAs, FSAs and HRAs.

What Is an HSA?

An HSA stands for a Health Savings Account. Kelley stated that HSAs work in conjunction with your existing HDHP plan (given you already have one) to cover costs associated with eligible medical, dental and vision expenses. Available to open just like a bank savings account, Kelley said, “It is your account; yours if you leave the employer and can contribute as long as you have an HDHP and can use the funds until they are gone, even if you are no longer in an HDHP.” For most, this applies to retirement. If you are reasonably healthy throughout your working life, Kelley said you can carry a large HSA balance into retirement. At that point, the funds can be used to cover the out-of-pocket medical costs that often increase with you as you age.

In addition to all the above, certain tax advantages exist within an HSA plan:

  • Contributions are excluded from federal income tax.
  • Interest earned is tax referable.
  • Withdrawals for eligible expenses are exempt from federal income tax.

HSAs are typically available through employers, but individuals can establish one, as well. Many banks offer HSA programs for their customers, meaning if your employer does not offer the benefit, you can create an HSA account there.

What Is an FSA?

An FSA is a Flexible Savings Account. Much like an HSA, these plans cover the payment of medical, dental and vision-related expenses, and contributions you make to the plan are tax-deductible. Similarly, when you open an FSA account, you’re typically provided with a debit card or checkbook, so the funds can be accessed in the account. However, Kelley stated an FSA plan has a catch: “An FSA cannot roll over unused funds from year to year and is not portable.” Therefore, any contributions made to the plan that have not been spent by the end of the year are forfeited.

Some employers, as Kelley noted, do have options that will help you avoid complete forfeiture of unused funds. Certain employers allow their employees to carry over up to $500 of unused funds into the following year, while others will extend the use of the funds for up to two and a half months into the new year. Employers generally will offer one or the other, but never both. Some, however, offer no such option at all.

Kelley mentioned general purpose FSA coverage, and stated it can “make you ineligible for HSA contributions.” She continued to add that certain types will not prevent HSA eligibility, i.e. limited FSA for vision, dental, parking or “post-deductible FSA” which reimburses you for preventative care or for medical expenses that are incurred “after the minimum annual HDHP deductible has been met.” As a result of forfeiting any unused funds in the account, an FSA is best used by someone who has ongoing and predictable medical expenses. In this situation, it is likely you will deplete the funds in the account, whereas if you are considered healthy and have limited medical expenses (i.e. minor illness, sinus infection), the potential for forfeiture is high, and you may have to forgo the account. FSAs are employer-sponsored and typically are an option as part of a ‘cafeteria plan’.

What Is an HRA?

An HRA is a Health Reimbursement Arrangement. Like the other plans described in this article, an HRA is a tax-free employer funded amount of money for healthcare expenses. Contributions, as Kelley explained, “can be excluded from gross income, meaning that won’t pay taxes on that money and reimbursements from the HRA are tax-free when used for qualified medical expenses.” Depending upon the type of HRA, unused funds may or may not be rolled over from one year to the next. However, employers may also allow employees to use their HRA funds even into their retirement.

The benefits of an HRA take action after the employee has met a specific portion (i.e. employee meets 1st $2500 of a $5000 deductible), making it easier for the employee to meet their high deductible. HRAs are good for employers who want more control over how their medical dollars are put to use. Naturally, if the employer is paying the cost of the HRA, it can be of an increased advantage than contributory health insurance premiums and direct payment for out-of-pocket expenses. With an HRA, the employer determines the reimbursements and does not have to contribute the same amount for all employee groups (i.e. tiers of employee coverage, employee/child, employee/spouse and family).

How Saxon Helps

It is important to understand the needs of every client and educate their employees on how to use their healthcare. Saxon values client education and service above all else. We make educating employees a priority and ensure their benefits are understood and easy to use. Saxon represents all of the major carriers, allowing us to secure the best plans and rates for you and your staff, which we review annually.

If you are considering offering an HSA, FSA or HRA insurance plan to your employees, contact Kelley Bell today at (937) 672-1547 or kbell@gosaxon.com to begin exploring the benefits of adding this superior level of coverage today.


4 Main Impacts of Yesterday's Executive Order

Yesterday, President Trump used his pen to set his sights on healthcare having completed the signing of an executive order after Congress failed to repeal ObamaCare.

Here’s a quick dig into some of what this order means and who might be impacted from yesterday's signing.

A Focus On Small Businesses

The executive order eases rules on small businesses banding together to buy health insurance, through what are known as association health plans, and lifts limits on short-term health insurance plans, according to an administration source. This includes directing the Department of Labor to "modernize" rules to allow small employers to create association health plans, the source said. Small businesses will be able to band together if they are within the same state, in the same "line of business," or are in the same trade association.

Skinny Plans

The executive order expands the availability of short-term insurance policies, which offer limited benefits meant as a bridge for people between jobs or young adults no longer eligible for their parents’ health plans. This extends the limited three-month rule under the Obama administration to now nearly a year.

Pretax Dollars

This executive order also targets widening employers’ ability to use pretax dollars in “health reimbursement arrangements”, such as HSAs and HRAs, to help workers pay for any medical expenses, not just for health policies that meet ACA rules. This is a complete reversal of the original provisions of the Obama policy.

Research and Get Creative

The executive order additionally seeks to lead a federal study on ways to limit consolidation within the insurance and hospital industries, looking for new and creative ways to increase competition and choice in health care to improve quality and lower cost.


Percent of Plans Offering HRA/HSA Option Plummet

Original post benefitspro.com

A study of some 10,000 employer sponsored plans by United Benefit Advisors of health plans revealed that about 24 percent of all health plans offered either an HSA or HRA component — a 29 percent decrease in the number of health plans nationally. That drop indicates that plan designers and health plan sponsors are still out of sync on the value of these accounts.

“Faulty plan design, in some instances, has led to smaller pricing gaps between traditional plans and HSA compatible plans,” says Steve Salinas, benefits advisor at Bridgeport Benefits, a California-based UBA Partner Firm. “Many insurers have added stipulations to their contracts disallowing employer-funded accounts in the presence of a high deductible plan.”

UBA’s data supports the overview that “enrollment and contributions to these account-based plans varied wildly based on employer size, industry, and region.”

It offered a large employer/small employer illustration of this near-chaotic situation. “While large employers typically offer the lowest contributions to account-based plans, companies with 200 to 1,000+ employees saw the most dramatic increases in enrollment, ranging from 50 to 90 percent over the last three years.”

In some respects, plan designers and consumers in California may be closer to figuring out how to design plans with HRAs and HSAs that strike a balance between the objectives of all three parties. California offers the best HRA and HSA plans for singles and families.

  • California leads the country with the highest HRA contributions for singles, which average $2,288;
  • California is the only region in the country that increased contributions over the last three years, making them the most generous in the nation by contributing $981 to singles and $1,789 to families;
  • Families in California receive the second highest average family contribution to HRAs at $3,950, a 13 percent decrease from three years ago when they led the nation at $4,537;
  • The average employer contribution to an HSA was $491 for a single employee and $882 for a family.

“In California, health insurance costs are so high that employees very often gravitate to the lowest cost options, typically the HSA-compatible high deductible plans,” says Keith McNeil, benefits advisor at Arrow Benefits Group in California, a UBA Partner Firm. “HRAs have been under health plan scrutiny due to the trend of self-insuring the high deductible through an HRA, which the health plan believes raises the cost of their plans. They have threatened penalties for non-compliance. So in the small group market, it has been much easier to simply offer HSA compatible plans and include the HSA as an option to members.”

“Large employers (1,000+ employees) have not typically offered competitive HRA or HSA plans because they are able to offer other types of more generous plans,” says Les McPhearson, CEO of UBA. “But this is the sector to watch: If they see the kind of double-digit cost increases other employer groups already have, they may have no choice but to offer more attractive HRA and HSA plans in an effort to control costs.”


7 sins of wellness programs

Gold standards are starting to emerge for corporate wellness programs. Virgin Pulse, which has been monitoring wellness program adoption and design, says there are basically two categories extant in the corporate world today: wellness 1.0 and wellness 2.0.

The overarching difference lies in engagement levels. But engagement has been a tricky quality to define, and even harder to achieve. Virgin's idea with 1.0/2.0 is to simplify the process, identify the major components that can lead to engagement, and offer easy-to-adopt methods to begin to grow engagement.

“While wellness 1.0 is a great start to showing your employees you care, it’s limited from the very beginning — many of these programs can be inapplicable and unappealing to a vast majority of people,” Virgin says in “Moving Beyond Wellness 1.0. “They may not offer enough variety or flexibility for people at different stages of their journey to better health. For some, there may be too many barriers to participation for them to overcome.”

Wellness 2.0 programs tend to include options that address three key health areas:

  • Exercise options, which make “people more energetic, focused, and productive”;
  • Healthy food options and health eating support, which offset “poor nutrition stemming from eating too much sugar, carbs, or fat can actually [which] cause cognitive impairment”; and
  • Sleep assistance options, because people who are well rested perform much better on the job than do those who don't get enough sleep.

But beyond those elements, the 2.0 programs don't have the characteristics that Virgin found in programs that are bedeviled by lack of engagement.

Virgin starts by examining the 1.0 level of wellness programs, and offering a list of defects that these low-engagement programs typically display. The Seven Deadly Sins of wellness 1.0 programs are:

  • They only target the sick
    Positive: Good for those with health issues who want to change.
    Negative: Limits the number of employees who will be interested in the program or who can take advantage of what is offered.
  • They don’t encourage lasting behavior change
    Positive: Elements of the program can lead to quick benefits.
    Negative: Healthy behaviors aren't reinforced so health gains are often lost later on.
  • They don’t engage your potential wellness champions
    Positive: For those they target, these plans can work well in the short term.
    Negative: If the program is all about helping people with health problems get somewhat healthier, the program leaves out the healthy workers who want to further enhance their health. These people can be champions of the wellness plan, Virgin says. But too often they are not considered in plan design, so they don't participate.
  • hey lack daily engagement
    Positive: There isn't one for this category.
    Negative: Poor communications with employees about their wellness options can doom even a robust wellness program. As Virgin notes, “Once the kickoff meeting is over, an employee’s health risk assessment is complete, and they have their login for the wellness site, most don’t engage with the program again until they’re nudged — or as far out as the next wellness kickoff meeting.” Engagement needs to be daily, Virgin argues, to drive engagement.
  • They focus on HRAs and biometrics alone
    Positive: Both are great tools for evaluating the physical well-being of your workforce.
    Negative:  Too often, the information from HRAs and biometrics screenings isn’t used to create an actionable wellness plan that helps address the health concerns these assessments uncover.
  • They only offer rewards upfront
    Positive: The upfront “bonus” attracts people to the program initially.
    Negative: That bonus is often the only tangible reward employees ever see for participation. “The unfortunate result is that many of the people you’d like to see in your program may very likely disengage after the big initial reward is gone,” Virgin says.
  • They’re an administrative burden
    Positive: Keeps employment strong in the HR department.
    Negative: Costly! “The last thing you need is a system that’s tough for you to manage and tough for your people to use. Unfortunately, that’s often what happens with wellness 1.0 programs. The harder it is to administer, the further down the list of priorities it falls.”

11 Health Insurance Tax Facts You Need to Know

Originally posted on April 4, 2014 by Robert Bloink and William H. Byrnes on http://www.lifehealthpro.com

Among the many changes the Patient Protection and Affordable Care Act (PPACA) has triggered, amendments to the tax code rank high. Employers and those who advise them may have questions about what expenses qualify for deductions, which tax credits they can take advantage of, and what the new rules mean for grandfathered plans. Individuals may be wondering how HSA distributions are taxed, or whether benefits received under a personal health insurance policy are taxable. If these or other questions are coming your way, fear not, we have the well-researched answers you're looking for.

1. Are premiums paid for personal health insurance deductible as medical expenses?

Premiums paid for medical care insurance, that is, hospital, surgical, and medical expense reimbursement coverage, is deductible as a medical expense to the extent that, when added to all other unreimbursed medical expenses, the total exceeds 10 percent of a taxpayer’s adjusted gross income (7.5 percent for tax years beginning before 2013). The threshold is also 10 percent for alternative minimum tax purposes.

The Patient Protection and Affordable Care Act increased the threshold to 10 percent of a taxpayer’s adjusted gross income for taxpayers who are under the age of sixty-five effective in tax years beginning January 1, 2013. Taxpayers over the age of sixty-five will be temporarily excluded from this provision and the threshold for deductibility for these taxpayers will remain at the 7.5 percent level from years 2013 to 2016.

No deduction may be taken for medical care premiums or any other medical expenses unless a taxpayer itemizes his or her deductions. The limit on itemized deductions for certain high-income individuals is not applicable to medical expenses deductible under IRC Section 213.

Premiums for only medical care insurance are deductible as a medical expense. Premiums for non-medical benefits, including disability income, accidental death and dismemberment, and waiver of premium under a life insurance policy, are not deductible.

Amounts paid for any qualified long-term care insurance contract or for qualified long-term care services generally are included in the definition of medical care and, thus, are eligible for income tax deduction, subject to certain limitations.

Compulsory contributions to a state disability benefits fund are not deductible as medical expenses but are deductible as taxes. Employee contributions to an alternative employer plan providing disability benefits required by state law are nondeductible personal expenses.

If a policy provides both medical and non-medical benefits, a deduction will be allowed for the medical portion of the premium only if the medical charge is reasonable in relation to the total premium and is stated separately in either the policy or in a statement furnished by the insurance company.

Similarly, because the deduction is limited to expenses of the taxpayer, his or her spouse and dependents, where a premium provides medical care for others as well (as in automobile insurance) without separately stating the portion applicable to the taxpayer, spouse and dependents, no deduction is allowed.

If a policy provides only indemnity for hospital and surgical expenses, premiums qualify as medical care premiums even though the benefits are stated amounts that will be paid without regard to the actual amount of expense incurred. Premiums paid for a hospital insurance policy that provides a stated payment for each week an insured is hospitalized, not to exceed a specified number of weeks, regardless of whether the insured receives other payments for reimbursement, do not qualify as medical care premiums and hence are not deductible.

Premiums paid for a stand-alone critical illness policy are considered capital outlays and are not deductible.

A deduction will also be denied for employees’ contributions to a plan that provides that employees absent from work because of sickness are to be paid a percentage of wages earned on that day by co-employees.

Premiums paid for a policy that provides reimbursement for the cost of prescription drugs are deductible as medical care insurance premiums.

Medicare premiums, paid by persons age sixty-five or older, under the supplementary medical insurance or prescription drug programs are deductible as medical care insurance premiums. Taxes paid by employees and self-employed persons for basic hospital insurance under Medicare are not deductible.

Premiums prepaid by a taxpayer before the taxpayer is sixty-five for insurance covering medical care for the taxpayer, his or her spouse, and his or her dependents after the taxpayer is sixty-five are deductible when paid provided they are payable on a level-premium basis for ten years or more or until age sixty-five, but in no case for fewer than five years.

Payments made to an institution for the provision of lifetime care are deductible under IRC Section 213(a) in the year paid to the extent that the payments are properly allocable to medical care, even if the care is to be provided in the future or possibly not provided at all. The IRS has stated that its rulings should not be interpreted to permit a current deduction of payments for future medical care including medical insurance provided beyond the current tax year in situations where future lifetime care is not of the type associated with these rulings.

2. May an employer deduct as a business expense the cost of premiums paid for accident and health insurance for employees?

An employer generally can deduct as a business expense all premiums paid for health insurance for one or more employees. This includes premiums for medical expense insurance, dismemberment and sight loss coverage for the employee, his or her spouse and dependents, disability income for the employee, and accidental death coverage.

Premiums are deductible by an employer whether coverage is provided under a group policy or under individual policies. The deduction for health insurance is allowable only if benefits are payable to employees or their beneficiaries; it is not allowable if benefits are payable to the employer. Where a spouse of an employer is a bona fide employee and the employer is covered as a family member, the premium is deductible. A corporation can deduct premiums it pays on group hospitalization coverage for commission salespersons, regardless of whether they are employees. Premiums must qualify as additional reasonable compensation to the insured employees.

If a payment is considered made to a fund that is part of an employer plan to provide the benefit, the deduction for amounts paid or accrued may be limited.

An accrual basis employer that provides medical benefits to employees directly instead of through insurance or an intermediary fund may not deduct amounts estimated to be necessary to pay for medical care provided in the year but for which claims have not been filed with the employer by the end of the year if filing a claim is necessary to establish the employer’s liability for payment.

3. What credit is available for small employers for employee health insurance expenses?

A credit is available for employee health insurance expenses of an eligible small employer for taxable years beginning after December 31, 2009, provided the employer offers health insurance to its employees.

An eligible small employer is an employer that has no more than twenty-five full time employees, the average annual wages of whom do not exceed $50,000 (in 2010, 2011, 2012 and 2013; the amount is indexed thereafter).

An employer must have a contribution arrangement for each employee who enrolls in the health plan offered by the employer through an exchange that requires that the employer make a non-elective contribution in an amount equal to a uniform percentage, not less than 50 percent, of the premium cost.

Subject to phase-out based on the number of employees and average wages, the amount of the credit is equal to 50 percent, and 35 percent in the case of tax exempts, of the lesser of (1) the aggregate amount of non-elective contributions made by the employer on behalf of its employees for health insurance premiums for health plans offered by the employer to employees through an exchange, or (2) the aggregate amount of non-elective contributions the employer would have made if each employee had been enrolled in a health plan that had a premium equal to the average premium for the small group market in the ratings area.

For years 2010, 2011, 2012 and 2013, the following modifications apply in determining the amount of the credit:

(1) the credit percentage is reduced to 35 percent (25 percent in the case of tax exempts);

(2) the amount under (1) is determined by reference to non-elective contributions for premiums paid for health insurance, and there is no exchange requirement; and

(3) the amount under (2) is determined by the average premium for the state small group market.

The credit also is allowed against the alternative minimum tax.

In 2014 small employers will have exclusive access to an expanded Small Business Healthcare Tax Credit under the Patient Protection and Affordable Care Act (PPACA). This tax credit covers as much as 50 percent of the employer contribution toward premium costs for eligible employers who have low- to moderate-wage workers.

4. Are benefits received under a personal health insurance policy taxable income?

No.

All kinds of benefits from personal health insurance generally are entirely exempt from income tax. This includes disability income; dismemberment and sight loss benefits; critical illness benefits; and hospital, surgical, or other medical expense reimbursement. There is no limit on the amount of benefits, including the amount of disability income, that can be received tax-free under personally paid health insurance or under an arrangement having the effect of accident or health insurance. At least one court has held, however, that the IRC Section 104(a)(3) exclusion is not available where a taxpayer’s claims for insurance benefits were not made in good faith and were not based on a true illness or injury.

The accidental death benefit under a health insurance policy may be tax-exempt to a beneficiary as death proceeds of life insurance. Disability benefits received for loss of income or earning capacity under no fault insurance are excludable from gross income. The exclusion also has been applied to an insured to whom policies were transferred by a professional service corporation in which the insured was the sole stockholder.

Health insurance benefits are tax-exempt if received by the insured and if received by a person having an insurable interest in an insured.

Medical expense reimbursement benefits must be taken into account in computing a taxpayer’s medical expense deduction. Because only unreimbursed expenses are deductible, the total amount of medical expenses paid during a taxable year must be reduced by the total amount of reimbursements received in that taxable year.

Likewise, if medical expenses are deducted in the year they are paid and then reimbursed in a later year, the taxpayer or the taxpayer’s estate, where the deduction is taken on the decedent’s final return but later reimbursed to the taxpayer’s estate, must include the reimbursement, to the extent of the prior year’s deduction, in gross income for the later year.

Where the value of a decedent’s right to reimbursement proceeds, which is income in respect of a decedent, is included in the decedent’s estate, an income tax deduction is available for the portion of estate tax attributable to such value.

Disability income is not treated as reimbursement for medical expenses and, therefore, does not offset such expenses.

Example. Mr. Jones, whose adjusted gross income for 2012 was $25,000, paid $3,000 in medical expenses during that year. On his 2012 return, he took a medical expense deduction of $1,125 [$3,000 - $1,875 (7.5 percent of his adjusted gross income)]. In 2013, Mr. Jones receives the following benefits from his health insurance: disability income, $1,200; reimbursement for 2012 doctor and hospital bills, $400. He must report $400 as taxable income on his 2013 return. Had Mr. Jones received the reimbursement in 2012, his medical expense deduction for that year would have been limited to $725 ($3,000 - $400 [reimbursement] - $1,875 [7.5 percent of adjusted gross income]). Otherwise, he would have received the entire amount of insurance benefits, including the medical expense reimbursement, tax-free.

5. How is employer-provided disability income coverage taxed?

Deduction

An employer generally can deduct all premiums paid for disability income coverage, as with all premiums paid for health insurance, for one or more employees as a business expense.

Premiums are deductible by an employer whether coverage is provided under a group policy or under individual policies. The deduction is allowable only if benefits are payable to employees or their beneficiaries; it is not allowable if benefits are payable to an employer.

The deduction of premiums paid for a disability income policy insuring an employee-shareholder was prohibited where the corporation was the premium payer, owner, and beneficiary of the policy. The Tax Court held that IRC Section 265(a) prevented the deduction because the premiums were funds expended to produce tax-exempt income. The Tax Court stated that disability income policy benefits, had any been paid, would have been tax-exempt under IRC Section 104(a)(3).

Taxation of benefits

Sick pay, wage continuation payments, and disability income payments, both preretirement and postretirement, generally are fully includable in gross income and taxable to an employee. Specifically, long-term disability income payments received under a policy paid for by an employer are fully includable in income to a taxpayer.

A disabled former employee could not exclude from income a lump sum payment received from the insurance company that provided the employee’s employer-paid long-term disability coverage. The lump sum nature of the settlement did not change the nature of the payment into something other than a payment received under accident or health insurance.

If benefits are received under a plan to which an employee has contributed, the portion of the disability income attributable to the employee’s contributions is tax-free. Under an individual policy, an employee’s contributions for the current policy year are taken into consideration. With a group policy, an employee’s contributions for the last three years, if known, are considered.

In Revenue Ruling 2004-55, the IRS held that the three-year look back rule did not apply because the plan was amended so that, with respect to each employee, the amended plan was financed either solely by the employer or solely by the employee. The three-year look back rule does not apply if a plan is not considered a contributory plan.

An employer may allow employees to elect, on an annual basis, whether to have premiums for a group disability income policy included in employees’ income for that year. An employee who elects to have premiums included in his or her income will not be taxed on benefits received during a period of disability beginning in that tax year. An employee’s election will be effective for each tax year without regard to employer and employee contributions for prior years.

Where an employee-owner reimbursed his corporation for payment of premiums on a disability income policy, the benefit payments that he received while disabled were excludable from income under IRC Section 104(a)(3).

Where an employer initially paid disability income insurance premiums but, prior to a second period of benefit payments, an employee took responsibility for paying premiums personally, the benefits paid from the disability income policy during the second benefit-paying period were not includable in the employee’s income.

Premiums paid by a former employee under an earlier long-term disability plan were not considered paid toward a later plan from which the employee received benefit payments. Thus, disability benefits were includable in income. If an employer merely withholds employee contributions and makes none itself, the payments are excludable. A tax credit for disability retirement income is available to taxpayers receiving those payments after the minimum age at which they would have received a pension or annuity if not disabled. This credit is called the Disability and Earned Income Tax Credit (EITC).

6. How is personal disability income coverage taxed?

Deduction

Premiums for non-medical care, such as personal disability income coverage, are not deductible. Only premiums for medical care insurance are deductible as a medical expense.

A deduction is allowed for medical care that is not otherwise compensated for by insurance. The deduction is allowed to the extent that the medical care expenses exceed 7.5 percent of the taxpayer’s adjusted gross income. For taxable years beginning in 2017, the deduction is allowed to the extent that the medical care expenses exceed 10 percent of the taxpayer’s adjusted gross income. The threshold is 10 percent for the alternative minimum tax and there is a transition rule for people over 65. The 10 percent threshold for regular tax does not apply until 2017.

Taxation of benefits

Benefits from personal disability income coverage typically are entirely exempt from income tax. There is no limit on the amount of benefits, including the amount of disability income that can be received tax-free under personally paid disability income coverage.

If benefits are received under a plan to which both an employer and employee have contributed, the portion of the disability income attributable to the employee’s contributions is tax-free.

7. How are amounts distributed from a Health Savings Account (HSA) taxed?

A distribution from an HSA used exclusively to pay qualified medical expenses of an account holder is not includable in gross income. Any distribution from an HSA that is not used exclusively to pay qualified medical expenses of an account holder must be included in the account holder’s gross income.

Any distribution that is includable in income because it was not used to pay qualified medical expenses is also subject to a penalty tax. The penalty tax is 10 percent of includable income for a distribution from an HSA. For distributions made after December 31, 2010, the additional tax on nonqualified distributions from HSAs is increased to 20 percent of includable income.

Includable distributions received after an HSA holder becomes disabled within the meaning of IRC Section 72(m)(7), dies, or reaches the age of Medicare eligibility are not subject to the penalty tax.

Qualified medical expenses are amounts paid by the account holder for medical care for the individual, his or her spouse, and any dependent to the extent that expenses are not compensated by insurance or otherwise. For tax years beginning after December 31, 2010, medicines constituting qualified medical expenses will be limited to doctor-prescribed drugs and insulin. Consequently, over-the counter medicines will no longer be qualified expenses unless prescribed by a doctor after 2010.

With several exceptions, the payment of insurance premiums is not a qualified medical expense. The exceptions include any expense for coverage under a health plan during a period of COBRA continuation coverage, a qualified long-term care insurance contract, or a health plan paid for during a period in which the individual is receiving unemployment compensation.

An account holder may pay qualified long-term care insurance premiums with distributions from an HSA even if contributions to the HSA were made by salary reduction through an IRC Section 125 cafeteria plan. Amounts of qualified long-term care insurance premiums that constitute qualified medical expenses are limited to the age-based limits found in IRC Section 213(d)(10) as adjusted annually.

An HSA account holder may make tax-free distributions to reimburse qualified medical expenses from prior tax years as long as the expenses were incurred after the HSA was established. There is no time limit on when a distribution must occur.

HSA trustees, custodians, and employers need not determine whether a distribution is used for qualified medical expenses. This responsibility falls on individual account holders.

8. When may an account owner transfer or rollover funds into an HSA?

Funds may be transferred or rolled over from one HSA to another HSA or from an Archer MSA to an HSA provided that an account holder affects the transfer within sixty days of receiving the distribution.

An HSA rollover may take place only once a year. The year is not a calendar year, but a rolling twelve-month period beginning on the day when an account holder receives a distribution to be rolled over. Transfers of HSA amounts directly from one HSA trustee to another HSA trustee, known as a trustee-to-trustee transfer, are not subject to the limits under IRC Section 223(f)(5). There is no limit on the number of trustee-to-trustee transfers allowed during a year.

A participant in a health reimbursement arrangement (“HRA”) or a health flexible spending arrangement (“Health FSA”) may make a qualified HSA distribution on a one time per arrangement basis. A qualified HSA distribution is a transfer directly from an employer to an HSA of an employee to the extent the distribution does not exceed the lesser of the balance in the arrangement on September 21, 2006, or the date of distribution. A qualified HSA distribution shall be treated as a rollover contribution under IRC Section 223(f)(5), that is, it does not count toward the annual HSA contribution limit.

If an employee fails to be an eligible individual at any time during a taxable year following a qualified HSA distribution, the employee must include in his or her gross income the aggregate amount of all qualified HSA distributions. The amount includable in gross income is also subject to a 10 percent penalty tax.

General-purpose health FSA coverage during a grace period, after the end of a plan year, will be disregarded in determining an individual’s eligibility to contribute to an HSA if the individual makes a qualified HSA distribution of the entire balance. Health FSA coverage during a plan year is not disregarded, even if a health FSA balance is reduced to zero. An individual who begins HDHP coverage after the first day of the month is not an eligible individual until the first day of the following month.

The timing of qualified HSA distributions therefore is critical for employees covered by general-purpose, that is, non-high-deductible, health FSAs or HRAs:

(1) An employee only should make a qualified HSA distribution if he or she has been covered by an HDHP since the first day of the month;

(2) An employee must rollover general purpose health FSA balances during the grace period after the end of the plan year, not during the plan year, and, of course, he or she must not be covered by a general purpose health FSA during the new year; and

(3) An employee must rollover the entire balance in an HRA or a health FSA to an HSA. If a balance remains in an HRA at the end of a plan year or in a health FSA at the end of the grace period, the employee will not be an HSA-eligible individual.

Beginning in 2007, a taxpayer may, once in his or her lifetime, make a qualified HSA funding distribution. A qualified HSA funding distribution is a trustee-to-trustee transfer from an IRA to an HSA in an amount that does not exceed the annual HSA contribution limitation for the taxpayer. If a taxpayer has self-only coverage under an HDHP at the time of the transfer, but at a later date during the same taxable year obtains family coverage under an HDHP, the taxpayer may make an additional qualified HSA funding distribution in an amount not exceeding the additional annual contribution for which the taxpayer has become eligible.

If a taxpayer fails to be an eligible individual at any time during a taxable year following a qualified HSA funding distribution, the taxpayer must include in his or her gross income the aggregate amount of all qualified HSA funding distributions. The amount includable in gross income also is subject to a 10 percent penalty tax.

9. What employers are eligible for the new tax credit for health insurance, and how does it work?

The new health insurance tax credit is designed to help approximately four million small for-profit businesses and tax-exempt organizations that primarily employ low and moderate-income workers. The credit is available to employers that have twenty-four or fewer eligible full time equivalent (“FTE”) employees paying wages averaging under $50,000 per employee per year.

IRC Section 45R provides a tax credit beginning in 2010 for a business with twenty-four or fewer eligible FTEs. Eligible employees do not include seasonal workers who work for an employer 120 days a year or fewer, owners, and owners’ family members, where average compensation for the eligible employees is less than $50,000 and where the business pays 50 percent or more of employee-only (single person) health insurance costs. Thus, owners and family members’ compensation is not counted in determining average compensation, and the health insurance cost for these people is not eligible for the health insurance tax credit.

The credit is largest if there are ten or fewer employees and average wages do not exceed $25,000. The amount of the credit phases out for business with more than ten eligible employees or average compensation of more than $25,000 and under $50,000. The amount of an employer’s premium payments that counts for purposes of the credit is capped by the average premium for the small group market in the employer’s geographic location, as determined by the Department of Health and Human Services.

Example: In 2013, a qualified employer has nine FTEs (excluding owners, owners’ family members, and seasonal employees) with average annual wages of $24,000 per FTE. The employer pays $75,000 in health care premiums for these employees, which does not exceed the average premium for the small group market in the employer’s state, and otherwise meets the requirements for the credit. The credit for 2013 equals $26,250 (35 percent x $75,000).

Additional examples can be found here.

10. How do the rules for obtaining the tax credit change over the years?

To obtain the credit, an employer must pay at least 50 percent of the cost of health care coverage for each counted worker with insurance.

In 2010, an employer may qualify if it pays at least 50 percent of the cost of employee-only coverage, regardless of actual coverage elected by an employee. For example, if employee-only coverage costs $500 per month, family coverage costs $1,500 per month, and the employer pays at least $250 per month (50 percent of employee-only coverage) per covered employee, then even if an employee selected family coverage the employer would meet this contribution requirement to qualify for the tax credit in 2010.

Beginning in 2011, however, the percentage paid by an employer for each enrolled employee must be a uniform percentage for that coverage level. If an employee receives coverage that is more expensive than single coverage, such as family or self-plus-one coverage, an employer must pay at least 50 percent of the premium for each employee’s coverage in 2011 and thereafter.

Thus, grandfathered health insurance plans that provide, for instance, for 100 percent of family coverage for executives and employee-only coverage for staff will qualify for the tax credit in 2010 but not in 2011 or beyond.

(1) Prohibition of lifetime benefit limits;

(2) No rescission except for fraud or intentional misrepresentation;

(3) Children, who are not eligible for employer-sponsored coverage, covered up to age twenty-six on a family policy, if the dependent does not have coverage available from his or her employer;

(4) Pre-existing condition exclusions for covered individuals younger than nineteen are prohibited; and

(5) Restricted annual limits for essential benefits.

Grandfathered health plans are exempt from the following additional requirements that apply to new and non-grandfathered health plans:

(1) No cost sharing for preventive services;

(2) Nondiscrimination based on compensation;

(3) Children covered up to age twenty-six on family policy regardless of whether a policy is available at work. Grandfathered status for the adult dependent coverage ends on January 1, 2014;

(4) Internal appeal and external review processes;

(5) Emergency services at in-network cost-sharing level with no prior authorization; and

(6) Parents must be allowed to select a pediatrician as a primary care physician for their children and women must be allowed to select an OB-GYN for their primary care physician.

 

 


HSA, HRA contributions reach record high in 2013

Originally posted March 14, 2014 by Melissa A. Winn on http://ebn.benefitnews.com

The number of employers contributing to health savings accounts or health reimbursement arrangements continues to grow, with 71% of employees reporting contributions from their employers in 2013, according to a new report by the Employee Benefit Research Institute.

That number represents the highest level of employers contributing since the 2005 inception of the EBRI/ Greenwald & Associates Consumer Engagement in Health Care Survey (CEHCS).

While the study found that the number of employers contributing to HSAs and HRAs has grown, it also found the amount of their contributions for some has declined. The percentage of employees with employee-only coverage reporting employee contributions of $1,000 or more slipped from 28% to 23% in 2013.

For employees with family coverage, employer contribution levels were mostly unchanged, however.

That trend held true for employee contributions, as well. EBRI found, on average, workers with employee-only coverage dropped their HSA contribution levels last year, but those with family coverage kept contribution levels relatively steady.

These findings come from the 2008–2013 EBRI/Greenwald & Associates Consumer Engagement in Health Care Surveys (CEHCS), and earlier EBRI surveys, that have tracked the growth of so-called consumer-driven health plans since 2007. CDHPs consist of HSAs, health reimbursement arrangements (HRAs), and high-deductible health plans designed to bring aspects of consumerism to health insurance plans.

According to the study, 11.8 million adults ages 21-64, 9.7% of the U.S. population, were enrolled in a plan with an HRA or HAS in 2013. Another 9.3 million reported they were covered by an HSA-eligible plan but had not yet opened the account. Overall, therefore, the study found about 21 million adults ages 21-64 with private insurance, representing 17.3% of that market, were either already in a CDHP or covered by an HSA-eligible plan. When their children were included, 26.1 million individuals with private insurance, representing 15% percent of the market, were either in a CDHP or an HSA-eligible plan.

The full report, “Employer and Worker Contributions to Health Reimbursement Arrangements and Health Savings Accounts, 2006–2013,” can be found online at ebri.org.


IRS Releases Tax Benefit Inflation Adjustments for 2014

Originally posted http://www.ifebp.org

Internal Revenue Service (IRS) Revenue Procedure 2013-35 provides the cost-of-living adjustments to certain items for 2014 as required under the Internal Revenue Code. This revenue procedure includes updates for numerous items including:

Adoption Assistance Programs
For taxable years beginning in 2014, under § 137(a)(2) the amount that can be excluded from an employee’s gross income for the adoption of a child with special needs is $13,190. Under § 137(b)(1) the maximum amount that can be excluded for amounts paid or expenses incurred by an employer for qualified adoption expenses furnished through an adoption assistance program for other adoptions by the employee is $13,190. The amount excludable from gross income begins to phase out for taxpayers with modified adjusted gross income in excess of $197,880 and completely phases out with modified adjusted gross income of $237,880 or more.

Health Flexible Spending Arrangements (Health FSA)
The Affordable Care Act amended § 125 to provide limitations on Health FSAs. The dollar limitation on voluntary employee salary reductions for a health FSA is adjusted for inflation for taxable years beginning after December 31, 2013. For taxable years beginning in 2014, the dollar limitation is $2,500.

Medical Savings Accounts

  • Self-only coverage. For taxable years beginning in 2014, the term "high deductible health plan" as defined in § 220(c)(2)(A) means, for self-only coverage, a health plan with an annual deductible not less than $2,200 and not more than $3,250, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,350.
  • Family coverage. For taxable years beginning in 2014, the term "high deductible health plan" means, for family coverage, a health plan with  an annual deductible not less than $4,350 and not more than $6,550, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,000.

Qualified Transportation Fringe Benefit
 For taxable years beginning in 2014, the monthly limitation under § 132(f)(2)(A) regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $130. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $250.

 

 


To incent or not to incent

Originally posted October 18, 2013 by Rhonda Willingham on lifehealthpro.com

There is a lot of confusion and more than a few questions about the use of incentives in benefits these days.

What do the Health Insurance Portability and Accountability Act’s (HIPAA) new wellness regulations mean? How can we incentivize employees, without risking noncompliance with new regulations?

Incentives are an especially big question mark for employers because so many want to find ways to motivate, encourage and lower the health care costs for the 5 percent to 10 percent of their employee population that is driving 80 percent or more of their costs.

Often these are employees who have chronic conditions such as diabetes or heart disease, or who may be obese – a condition now classified by the American Medical Association as a disease. Often these are also valuable tenured employees who have the skills, knowledge and expertise a company may need; helping them helps the company.

Here’s what you can tell your group health employer clients about the complex issues surrounding incentives today:

1. Offer a health risk assessment
One of the first steps toward getting employees to improve their health is the health risk assessment (HRA), which is the entry point for most wellness programs. Employers frequently offer financial incentives, premium discounts, or even PTO to get people to take the HRA.

Yes, HRAs have come into question of late in benefits circles – but, despite the current controversy, they remain a very smart tool for employers. They provide important information about the health status of employees and what programs (based on aggregate, not individual data) could provide the most value to the organization.

But . . . and here’s where a lot of employers have gotten into trouble . . . you must fully explain their value, including how they work. Include the steps that need to be taken to protect privacy and ensure employees know they can opt out – preferably without penalties - if wanted.

2. Understand what new regulations do and don’t say
What employers can and can’t do with incentives is governed in part by the Patient Protection and Affordable Care Act (PPACA) and HIPAA.

One of the many provisions of PPACA is that it allows employers to link greater financial incentives to the achievement of predetermined health targets, such as smoking cessation or healthy weight. HIPAA also governs what group health plans can do with benefit programs.

Most importantly, HIPAA prohibits employers from charging different premiums based on health status. People can’t be penalized just because someone is overweight or has diabetes or heart disease.

HIPAA’s new wellness regulations, introduced in June of this year, state that:

…a group health plan…may not require any individual (as a condition of enrollment or continued enrollment under the plan) to pay a premium or contribution which is greater than [that] for a similarly situated individual enrolled in the plan on the basis of any health status related factor…

The other major component for HIPAA is guidance on the dollar amount allowed for incentives.

Health plans and insurers will be able to offer higher financial rewards to participants achieving healthy behaviors such as quitting smoking or reducing cholesterol. Specifically, as of Jan. 1, up to 30 percent of the total cost of health plan coverage (employer and employee cost of coverage with no cap) may be tied to an incentive. Tobacco cessation and usage reduction programs allow rewards to be increased to 50 percent. Now, in reality very few employers will go up to that 30 percent, but it is an option.

The real trick to compliance with HIPAA’s wellness regulations is that wellness programs will have to ensure they do not discriminate against people based on health factors. For example, if an employee is extremely obese and unable to participate in a walking program that provides financial incentives, there must be an alternative program for that employee.

3. Determine if you will use a carrot or stick
Employers have developed a range of approaches to incentives over the past few years. Most incentives today are based either on participation, outcomes or progress. Participation-based programs are simple.

You participate, sign a sheet that you came to the stop-smoking class or joined a gym, and you qualify for the incentive. Outcome-based programs usually include financial incentives.

Employers have learned over time that money is a great motivator for participation in either the HRA or a wellness program. The threshold for motivating employees seems to be right around $300 to $500 annually.

The key characteristic of an outcome incentive is that the employee doesn’t get that incentive unless he or she achieves a pre-determined goal or health standard, such as quitting tobacco use, losing 10 percent of body weight within six months, or bringing cholesterol levels within normal limits, etc.

Progress-based incentives are viewed as a “kinder, gentler” approach. They reward employees based on incremental, individually-attainable goals rather than a singular goal for all. In other words, you may need to lose 50 pounds, but the employer says, “We know losing even five pounds helps you and helps us, so you will still get the incentive.” (Studies show even small reductions in risk lower health care costs.)

Here again is where the incentive question gets tough and complicated. A Towers Watson 2012 survey reports that 62 percent of employers plan on switching from incentives for participation – which employees like – to incentives for improvements – which employers like – because it holds employees more accountable and the thought/hope is it will produce more tangible and measurable outcomes.

So what’s an employer to do when it comes to incentives? As we are learning from recent high profile news stories, employees will push back hard if they don’t support a wellness program and its goals (which typically happens if there is poor communication), or if they think non-participation penalties are too punitive. We all understand the need for accountability, but if that comes at the price of an unhappy employee population, what have you really won?

Every organization is different; I think it’s difficult to mandate you must do X, Y or Z. As part of my job with a leading health and wellness company and as a member of a number of key organizations evaluating worksite wellness programs and incentives, my recommendation is to consider a developing and evolving plan with incentives that engage, motivate and encourage all employees.

Start with simply incentivizing participation. Then as the program becomes better accepted with employees experiencing success – and as you do more education and communication – you can always migrate to the incorporation of a program that incentivizes progress.

Again, there is no one-size fits all, but we do know that what truly motivates people are programs that build intrinsic motivation. Program designs with the best chance of fostering such intrinsic motivation are those that use extrinsic tools (e.g., a weight loss program for employees) in a way that doesn’t make employees feel pressured but creates a supportive and empowering environment that promotes individual choice.

The last word on incentives is that the ultimate goal is not to get people to engage in behaviors for a short period of time just to get dollars. The objective is for employees to internalize the goal and learn how to make and sustain better lifestyle choices themselves.


Regs Limit Use of HRAs for Exchange-Purchased Coverage

Original content from http://www.shrm.org

On Sept 13, 2013, federal agencies issued further guidance via IRS Notice 2013-54 and DOL Technical Release 2013-03, reiterating that health reimbursement arrangements (HRAs), premium reimbursement arrangements (PRAs) and other employer payment plans cannot be used to pay for individual policy premiums on a pre-tax basis, such as when indivdiual coverage is purchased by employees through a public health insurance exchange or on the individual market.

For a true “retiree-only plan” under the tax code and ERISA, employers can still sponsor an HRA or PRA and reimburse individual policy premiums on a pre-tax basis.

Also, employers can provide their active employees with a defined dollar amount, on a pre-tax basis, to purchase group coverage through a private exchange, as explained in the SHRM Online articles "On Private Health Exchange, Choice Drives Satisfaction" and "Time for Defined Contribution Health Benefits?"

A set of frequently asked questions and answers (FAQs) issued by federal regulators on Jan. 24, 2013, will limit the use of employer-provided health reimbursement arrangements (HRAs) to fund employee purchases of individual (nongroup) coverage on government-run health care exchanges, scheduled to launch in 2014.

HRAs are employer-funded notional accounts that are often, but not always, linked to high-deductible group health plans. They typically consist of an employers' promise to reimburse an employee's out-of-pocket medical expenses through a dollar amount contributed annually to the employee's HRA, with unused amounts carried over to help reimburse medical expenses in future years. When the employment relationship ends, the HRA reverts back to the employer since, unlike a health savings account (HSA), an HRA is not employee owned and not portable. (To learn about HRAs and how they operate, see the SHRM Online article "Consumer-Driven Decision: Weighing HSAs vs. HRAs.")

The new guidance, jointly issued by the U.S. Departments of Health and Human Services, Labor and Treasury, distinguished between HRAs that are "integrated" with other coverage as part of a group health plan and HRAs that are not integrated ("stand-alone" HRAs).

The FAQs clarify that an HRA that is not integrated with group health plan coverage but provided as a stand-alone benefit is subject to the Patient Protection and Affordable Care Act (PPACA) prohibition on limiting the amount of an employee's annual health care spending subject to insurance coverage.  Beginning in 2014, for employers with more than one employee, restricted annual dollar limits are not permitted.

Because of the prohibition on annual dollar limits, an employer-sponsored, stand-alone HRA cannot be used to fund the purchase of individual market coverage, or an employer plan that provides coverage through individually purchased policies, including those that might be purchased on a government-run exchange.

Public Exchanges and HRAs Don't Mix

"Some employers had hoped that with the advent of the [government-run] exchanges in 2014, they would be able to offer their employees a fixed-dollar contribution through an HRA, which would permit the employee to take advantage of the tax subsidies currently available through HRA coverage but get the employer out of the health insurance business," explained Timothy Jost, a professor at the Washington and Lee University School of Law in Virginia, in a commentary about the new FAQs posted on the journal Health Affairs' blog.

In addition, "some consumer advocates had hoped that employees would be able to couple funds offered by employers through HRAs with advance premium tax credits available through the exchanges to make individual health policies truly affordable," Jost wrote.

However, he noted, the FAQs clarify that this approach will not be permitted. "The agencies intend to issue further guidance on the issue but have concluded that stand-alone HRAs used to purchase individual coverage will not be considered to be integrated coverage that complies with the annual dollar limit requirement" under the PPACA.

Moreover, if employees are offered an HRA and group coverage but decline the latter, they still may not use the HRA to purchase individual policies, Jost said.

Not a Blanket Prohibition?

However, according to Peter Antoine, a compliance communications specialist at Middleton, Wisc.-based Employee Benefits Corporation, the fact that under the FAQ guidance a stand-alone HRA is subject to the no-limit provision does not mean that it can’t be used to reimburse the cost of an individual plan, even one purchased on an exchange. Rather, “the non-integrated HRA would have to have an unlimited benefit available, unless certain exemptions apply that weren’t spelled out in the FAQs,” he told SHRM Online.

Moreover, Antoine explained that “we believe that non-integrated HRAs that operate as health flexible spending accounts (FSAs), as described in IRS Notice 2002-45 and Internal Revenue Code Section 106, are not subject to the no-limit provision. Consequently, a stand-alone HRA that satisfies the health FSA definition could have a limited benefit, reimburse individual plan premiums and comply with health care reform.”

However, an analysis by law firm McKenna Long & Aldridge LLP concludes:

"Note that some experts have challenged whether the annual dollar limit prohibition even applies to an HRA used to fund individual premiums, since the law only prohibits annual dollar limits on EHBs [essential health benefits]. ... Other experts argue that the HRA premium reimbursement arrangements for individual market coverage should be exempt from the annual dollar limit prohibition as health flexible spending accounts meeting the definition of Code Section 106(c)(2) (i.e. the maximum amount available for reimbursement under the plan may not exceed 500% of the value of the coverage). However, the Departments apparently take a different view given the clear statement in the FAQ that HRAs reimbursing employees for individual market insurance premiums will violate the annual dollar limit prohibition."

Private Exchanges: Employer's Subsidy and Employee's Contributions Remain Pre-Tax

In Aon Hewitt's private Corporate Health Exchange, which launched in fall 2012 for plan year 2013, "the contracts between insurers and employers are traditional group contracts" covered under the Employee Retirement Income Security Act (ERISA), Ken Sperling, Aon Hewitt national health exchange strategy leader, explained to SHRM Online. "The employee contributions are still covered under Section 125, so the employer subsidy is deductible and the employee contributions are pre-tax, just like today. Nothing changes from a tax perspective." 

Private exchanges are not eligible for government-subsidized coverage, and thus differ from the new public exchanges (to learn more, see the SHRM Online article "On Private Heatlh Exchange, Choice Drives Satisfaction.")

 


Medical savings accounts on the upswing

By David Albertson

As of 2012 there was $17.8 billion in health savings accounts (HSAs) and health reimbursement arrangements (HRAs), spread across 11.6 million accounts, according to data from the latest EBRI/MGA Consumer Engagement in Health Care Survey, sponsored by the Employee Benefit Research Institute and Matthew Greenwald & Associates.

That’s up from 2006, when there were 1.3 million accounts with $873.4 million in assets, and 2011, when 8.5 million accounts held $12.4 billion in assets.

The balances continue to grow as more employers adopt high-deductible, consumer-driven health plans combined with HSAs/HRAs. However, assumptions about these plans are not always proving true. For example, analysts predicted that individuals given more control over funds for health care services would become more cost conscious as they became more educated about the actual prices of those services. However, according to EBRI, no evidence was found to support this, nor was there evidence that healthy behaviors had any real correlation with account balance.

Among other findings from the EBRI/MGA survey:

After leveling off, average account balances increased. After average account balances leveled off in 2008 and 2009, and fell slightly in 2010, they increased in 2011 and 2012. In 2006, the   average account balance was $696. It increased to $1,320 in 2007, a 90% increase. Account balances averaged $1,356 in 2008 and $1,419 in 2009, 3% and 5% increases, respectively. In 2010, average account balances fell to $1,355, down 4.5% from the previous year. In 2011, average account balances increased to $1,470, a 9% increase from 2010. It increased to $1,534, or 4%, in 2012.

Total and average rollovers increased. After declining to $1,029 in 2010, average rollover amounts increased to $1,206 in 2011 and remained there in 2012. Total assets being rolled over increased: $9.7 billion was rolled over into HSAs and HRAs in 2012, up from $6.8 billion in 2011. The percentage of individuals without a rollover was 11% in 2012.

Differences in account balances. Men have higher account balances than women, older individuals have higher account balances, account balances increase with household income, and education has a significant impact on account balances, independent of income and other variables.

Individual providers of HSAs likewise report significant growth in account balances over the past year, and bullish expectations for additional increases.

Among the HSA leaders, UMB Healthcare Services, a division of UMB Financial Corporation, announced that account balances for its HSAs grew 55% during the previous 12 months, surpassing $615 million dollars as of Jan. 31, 2013. The number of HSAs also grew to nearly 320,000 individual accounts, up dramatically from the 220,000 following open enrollment last year.

UMB Healthcare Services also saw a 29% increase in the number of debit cards it provides for Flexible Spending Accounts (FSAs), HRAs) and HSAs. Today, the number of cards in circulation has grown to more than 2.8 million.

According to the January 2012 annual census by America’s Health Insurance Plans’ Center for Policy and Research, the number of people with HSA/HDHP coverage rose to more than 13.5 million, up from 11.4 million in January 2011.

“Our HSA growth continues to reflect the trend we are seeing nationwide as more individuals and employers move toward consumer-directed health accounts,” said Dennis Triplett, CEO of UMB Healthcare Services. “We are now challenged with educating the growing number of employers and account holders on all that these accounts can offer toward future financial stability, beyond day-to-day health care expenses.”

Source: http://ebn.benefitnews.com/news/medical-savings-accounts-on-upswing-2731569-1.html