Health Savings Accounts

pfroemming · November 2004

We are switching our medical to a Health Savings Account. This is such a new area that no one really knows anything about it. According to the regs. a dependent does not qualify for the HSA if that individual can be claimed as a tax dependent of another individual. We have an employee that is divorced; she and her ex-husband alternate years claiming their child as their dependent. She pays all medical expenses for her child, the ex-husband pays child support to her. My question is - does her child qualify for the HSA?

mwild31 · November 2004

[font size="1" color="#FF0000"]LAST EDITED ON 11-11-04 AT 08:34PM (CST)[/font][br][br]Okay, two things. It sounds like the child is covered by the mom under a HDHP and the mom has the opportunity to use an HSA to help pay for costs & reduce her taxes. So, her child only qualifies for contributions to the HSA when she claims the child as her dependent. What this means is that the year in which she claims the child, she can contribute towards the annual contribution amount for families & deduct that contribution amount from her taxes. When she can't claim the child, she can only contribute towards the annual contribution amount for the ee only & deduct that contribution amount from her taxes. In either situation, the child is still covered by her health insurance coverage.

Just a note here, even during the year in which she can not claim her child as her dependent, she can still use the money in the HSA to pay for qualified medical expenses for the child. "In general, amounts in an HSA can be used for qualified medical expenses and will be excludable from gross income even if the individual is not currently eligible for contributions to the HSA." [url]http://www.irs.gov/pub/irs-drop/n-04-2.pdf[/url]

Please have the ee check with her CPA/financial guru to be sure - it's all still really new.

ps - I see you're in Washington. Are you guys going through Premera, Regence or Accordia? I would also call the rep. to see if they have an answer...

celeste · November 2004

What is your deducible for you new plan? We have just announced HDHP and HSA to our employees for 2005 and they are very unhappy. We went to the max ($2600 single and $5150 family)and are depositing $200 in single accounts and $400 in family accounts. Has this been a hard sell for your employees?

pfroemming · November 2004

Our deductible for the employee is $2,500 and $5,000 for the family. The firm is contributing $1,250 into the plan for the employee. Everyone realizes it will be a great plan down the road; its just the first couple of years will be hard getting their savings accounts built up, especially if they have many medical expenses.

celeste · November 2004

With the $200/$400 contribution, now you see why our employees are not happy.

National Guard · November 2004

I don't know HSA very well but I am going to respond anyway. Because I don't understand the logic. Children from divorce aren't typically covered under both parents health plans, so why would it matter who claims them on taxes, or what year they were claimed? The divorce agreement states which parent is responsible for health insurance coverage. I would think whomever carries them on their health policy is eligible for the HSA. The intent of the IRS would be to stop fraud, such as an ee suddenly acquiring 10 dependents (who are not the ee's own and are obviosly claimed on the rightful parents taxes) and benefiting from the reduced salary and tax liability.

mwild31 · November 2004

[font size="1" color="#FF0000"]LAST EDITED ON 11-15-04 AT 07:28PM (CST)[/font][br][br]The HSA is a new animal to be sure, but it's important to note that a HSA is money you set aside (save) to pay for health care costs and by doing so you get to receive a tax deduction - it's not a health insurance program. You can use the money in the HSA to pay for health care costs or if you don't mind paying the taxes plus a penalty you could use it to buy a new car - it's simply a savings account - and one you can only take advantage of if your employer has a High Deductible Health Plan (HDHP).

So, the parent that has to cover the child for health care per the divorce paperwork, still has to do so, but they may not be able to take advantage of the HSA tax deduction if they can't claim the child that year. It works kind of like this: If I claim my son on my taxes (because he's my dependent), I also get to file as head of household & receive tax benefits for doing so. If I can't claim my son (my ex's turn to claim him as his dependent), then I can't file as head of household and must instead file as single and I therefore lose some tax benefits. It's a deduction on someone's taxes and whether or not they get to take those deductions depends on whether or not they were able to claim their child as a dependent. Does that help any?

dynamite9551 · November 2004

we just met with our broker last week who is advising us to seriously consider an HSA. The benefit is to the employee who is covered under the employer's group health plan and those persons listed as "covered" dependents. The HSA benefits the employee from the standpoint they are the ones, through payroll deductions, who benefits from the pre-tax status. However, the money that accumulates can be used for any medical expenses, etc. including over-the-counter meds, as long as they are covered by the health carrier (if i am understanding him correctly).

We haven't seen our renewal yet so have no idea if we will make that move yet. I know we will have a riot on our hands because our employees have been so spoiled in the past. if this doesn't put them over the edge -- nothing will!

how have you handled "upset" employees when introducing this "benefit"???

thanks!

pfroemming · November 2004

None of our employees are "upset" over the change. They realize the great benefit this will be in the long run. It's just a matter of getting used to it all and the numerous questions everyone has. We had a great plan - the firm paid the premium and the deductibles for the employee and their families. But with another 23% increase in our plan we deceided to switch to the HSA. However, it did help ease everyone's minds when the firm agreed to contribute $1,250 to everyone's HSA for 1/2 of their deductible requirement.

mwild31 · November 2004

Does your firm intend to contribute $1,250 for every employee that's newly eligible for health insurance coverage after the plan starts - or is it a one time good deal right now for folks that are already on the existing plan? Also, next year during plan renewal, will your company offer the same amount?

pfroemming · November 2004

Our plan renewed November 1st at which time every covered employee received $208.33 in their HSA account for November and December. At the beginning of 2005 each employee gets another $1250. Any new hires will be pro-rated out for the year. Yes, we do intend to give each employee $1250 at the beginning of each year.

celeste · November 2004

Our employees don't see it as a benefit to them at all. As a matter of fact, they feel that they no longer have coverage at all but are paying the company for it. The problem is this - our employees (manufacturing) make $11.47 per hr. The thought of having a $3000 claim for their family ($5,150 deductible) at one time would be tragic. Most of them live week-to-week, single parents, going to school PT, etc. They don't have that kind of money.
This has not been an easy transition. If we could have deposited more than $200/$400 for them it may have been different.
But there is no employee here that considers this a benefit, much less an improved benefit. In addition, weekly contribution will be up to $30/week.

dynamite9551 · November 2004

as much as i agree with you, perhaps you should point out to the employees that this is better than having the entire group health plan terminated due to the cost of the premium - AND they will need to be more cost-conscious (sp?)now about how they use these benefits. this is what managed care has done to us!!!!

celeste · November 2004

Oh trust me I have tried everything. I have tried your suggestion. I have even tried the old faithful - "In order for the company to stay healthy." I think more than anything they are just used to having great benefits. We were part of a huge corporation traded on NASDAQ. Our division was sold off and are now privately held. We have many employees with 17 years (since the plant opened) seniority so they have been fortunate enough to enjoy the low cost benefits. This is just hard for them to grasp. The had a plan that they didn't think twice about, it was just a given.
A 2 week vacation is sounded better all the time. I start open enrollment Wednesday. Think about me!

JCInfo · November 2004

One thing you may want to consider is doing a spread sheet showing the employees the cost of the premiums for the "old" plan and compare it to the cost of the premiums for the HD plan. You will be able to show the employees that while the deductible is higher than they are used to, they will be "saving" on the premiums.

Also, if possible, you may want to come up with a couple of scenarios to compare. For example, the costs involved in treating a broken leg under the old plan, and the cost under the new plan.
The cost of dr visits under the old plan and the cost under the new plan.

Statistics show that only about 10% of plan participants will use more than $5000 in a plan year. And, 50% of the participants will use $500 or less during the plan year.

If an employee determines how often they have gone to the dr and/or had tests, etc done during a year, they will find the premium savings will often off-set the deductible . . . besides which, they can then continue to save and use the money when needed for other incurred medical expenses.

Hope this helps.

Health Savings Accounts

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