We'll be glad to answer any questions you have about CDH. Just give us a call. Here are our answers to some of the most common questions people have.
Q. What is CDHC?
A. Consumer-Driven HealthCare (CDHC), defined narrowly, refers to health plans in which employees have a personal health accounts such as a Medical Savings Account or a Health Reimbursement Arrangement (HRA); to which they pay medical expenses directly.
CDHC is sometimes used more loosely to refer to defined contribution health plans under which employees receive a fixed dollar contribution from an employer to choose among various plans. Those opting for plans with rich benefits may have to contribute significant amounts of their own money in addition to the employer's contribution. Those choosing bare-bones health plans contribute less of their own money.
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Q. Why is CDHC better than alternative forms of Health care?
A. The consumer-driven approach offers employees a wide range of plans they can purchase with the employer's contribution, their own money, or both. In contrast to the traditionally managed care plans, consumer-driven health care:
- Enables employees to customize their health benefits—for example, by allowing them to trade lower premiums for higher out-of-pocket maximums.
- Charges employees the actual cost of insurance.
- Lets providers, instead of insurers, set prices for their services and reap the benefits of innovation.
- Offers employees comparative quality and cost information about both insurers and health care providers.
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Q. What is a "high-deductible health plan" (HDHP)?
A. Sometimes referred to as a "catastrophic" health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn't pay for the first several thousand dollars of health care expenses (i.e., your "deductible") but will generally cover you after that. For 2011, the minimum deductible for an individual is $1,200, and $2,400 for a family. The annual out-of-pocket expenses (including deductibles and co-pays) for 2011 cannot exceed $5,950 (self-only coverage) or $11,900 (family coverage). In 2012, the minimum deductibles will remain unchanged from 2010 and 2011. The annual out-of-pocket maximums in 2012 will increase to $6,050 for self-only coverage and $12,100 for family coverage. HDHPs can have first dollar coverage (no deductible) for preventive health care and apply higher out-of-pocket limits (and co-pays & coinsurance) for non-network services.
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Q. What is an HSA?
A. An HSA is a tax-free account with money deposited by individuals, employers, or both, to spend on routine medical costs. The account is combined with an inexpensive, high-deductible insurance policy to pay for catastrophic medical care in case of major accident or serious illness. HSAs create a financial incentive to spend dollars wisely, because unspent dollars accumulate tax-free in their own personal accounts. Consumers are able to shop around, compare prices and providers, and select the medical services that are best for them.
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Q. What is an HRA?
A. A Health Reimbursement Arrangement (HRA) is an instrument offered in conjunction with a high-deductible health plan, and is funded by the employer for each participating employee. It pays for eligible health care expenses typically covered under the medical plan. Unused funds can be carried over to the next year to cover future health care expenses, an incentive to employees to use their personal HRA wisely. If funds are exhausted, the employee is responsible for satisfying the remaining deductible before the plan begins to pay. If the employee changes jobs, the money stays with the employer.
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Q. What is an FSA?
A. A Flexible Spending Account (FSA) is authorized under Section 125 of the Internal Revenue Code and typically funded by an employee's salary reduction to help pay certain expenses not covered by the employer's plan or insurance contract. Because FSA deposits escape federal income taxes, participants can pay for medical care with pretax dollars, but they forfeit any unused funds at the end of each calendar year.
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Q. Who can have an HSA?
A. To qualify for HSA, an individual must be covered by a High Deductible Health Plan (HDHP) that meets federal regulations, and not be covered by any other type of plan, including Medicare.
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Q. What happens if my medical expenses exceed the amount of my deductible?
A. The coverage supplied by the High Deductible Health Plan (HDHP) will cover the balance of qualified expenses.
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Q. What if my medical expenses do not reach my deductible?
A. Individuals are able to roll-over unused funds in their HSA accounts from one year to the next. It is also possible to pay qualified expenses from a previous year, as long as they were incurred after the HSA was established.
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Q. What about the taxes on the money in the account not used for medical expenses?
A. If under 65 any withdrawal of funds from an HSA for a non-qualified expense is subjected to income tax and a 10% penalty tax on the withdrawn funds. If 65 or older, withdrawals out of an HSA for non-medical and non-qualified expenses are not subjected to the 10% penalty, but are subjected to income taxes.
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Q. Is it possible to be enrolled in Medicare and be eligible for an HSA?
A. No. You are not eligible for an HSA after you have enrolled in Medicare. If you had an HSA before you enrolled in Medicare, you can keep it. However, you cannot continue to make contributions to an HSA after you enroll in Medicare.
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Q. Can couples establish a "joint" account and both make contributions to the account, including "catch-up" contributions?
A. "Joint" HSA accounts are not permitted. If eligible, each spouse should consider establishing an account in his or her own name. This allows you to both make catch-up contributions when each spouse is 55 or older. Note: Participants must be covered by a High Deductible Health Plan (HDHP) to be eligible to contribute to a HSA.
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Q. What happens to the funds in my HSA if I die?
A. If married, your spouse becomes the owner of the HSA when you die. If unmarried, the HSA becomes part of your taxable estate.
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Q. Is there a limit on how much can be contributed to an HSA and written off on taxes each year?
A. Yes. The most that can be put into an account for 2011 is $3,050 for single coverage and $6,150 for a family. For 2012, these amounts are $3,100 and $6,250, respectively. These amounts will be increased for inflation in future years.
Amounts are adjusted each year by the treasury.
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Q. Can my HSA be use to pay premiums?
A. Normally, "qualified medical expenses" do not include other health insurance premiums (including premiums for dental or vision care). However, certain exceptions do exist, including paying premiums while collecting Federal or State unemployment benefits, or paying COBRA continuation coverage though a former employer.
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Q. What happens to my HSA if I leave my health plan or job?
A. You do not lose your health coverage if you change jobs. The money in your HSA belongs to you, not to your employer, an insurance company, HMO or government agency. Money is contributed to your HSA account by your former employer is yours to keep.
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Q. Who can contribute to an HSA?
A. Contributions can be made by anyone on behalf of the eligible individuals.
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Q. How do I contribute to an HSA?
A. You can contribute to an HSA in a lump sum or in any amounts or frequency you wish. However, account trustees and custodians (bank, credit union, insurer, etc.) can impose minimum deposit and balance requirements.
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Q. What expenses can I pay for with an HSA?
A. A determination of whether an expense is for "medical care" is based on a list of relevant facts and circumstances. To qualify, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. As the policy holder, you are responsible for making that decision, and therefore should familiarize yourself with what qualifying medical expenses are (as partially defined in IRS Publication 502) and also keep your receipts in case you need to defend your expenditures or decisions during an audit. (Click here for a copy of IRS Publication 502).
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Q. What is the difference between an HSA, FSA, and HRA?
A. The following descriptions will help you learn more about all of these plan types.
Plan Comparisons, HSA, HRA, FSA
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Q. What insurers are offering qualified high-deductible health plans that can be used with a health savings account (HSA)?
A. Any bank, credit union or any other entity that currently meets the IRS standards for being a trustee or custodian for an IRA or Archer Medical Savings Account (MSA) can be an HSA trustee or custodian. The law also allows insurance companies to be HSA trustees or custodians. Most major Health Insurance companies (i.e. Aetna, Blue Cross/Blue Shield, UnitedHealthcare, etc.) offer HSAs.
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Q. What is an HSA trustee or custodian?
A. The differences between a "custodian" and a "trustee" are minor. A trust is a legal entity under which assets are actually owned and held on behalf of beneficiary. The trustee has some level of discretionary fiduciary authority over the assets of the fund. The trustee must exercise that authority in the best interests of the beneficiary. A custodial arrangement, on the other hand, is like a trust, but the custodian simply holds the assets on behalf of the owner of the assets. Other than holding the assets and doing as the owner orders, the custodian has no fiduciary obligations to the owner. The determination of what constitutes a trust or custodial arrangement is a determination made under state law.
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Q. What are qualified expenses that may be paid from an HSA?
A. Account distributions are tax free for qualified medical expenses as defined by 201(d) of the IRC (further explanation may be found in IRS Publication 502, "Medical and Dental Expenses" ). Tax-free distributions to pay premiums for long-term care insurance, COBRA continuation, and health insurance while unemployed are allowed. Qualified expenses also include prescription drugs, qualified long-term care services, Medicare expenses (but not Medigap), and retiree health expenses for individuals age 65 and older. Tax-free distributions may be made for medical expenses for persons covered by a high-deductible health plan, but they may also make tax-free distributions for their spouse or any dependent even if such individuals are not covered by the high-deductible health plan. If the amount distributed is used for something other than qualified medical expenses, the amount distributed will be taxed and, for individuals who are not disabled or over age 65, subjected to a 10% tax penalty.
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Q. Are preventive care benefits permitted?
A. Generally, a high-deductible health plan cannot provide benefits before the deductible is statisfied, however, there is an exception for preventive care benefits. The IRS issued a "safe-harbor" list of benefit that can be provided by a high-deductible health plan, generally clarifying that traditional preventive care benefits. Annual physicals, immunizations and screening services, are preventive care under HSAs, as well as routine prenatal and well-child care, tobacco cessation programs and obesity/weight-loss programs.
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Q. What are some of the updated HSA requirements?
A. Health Savings Account Contribution:
- Individual Coverage: maximum annual HSA contribution for an eligible individual with self-only coverage is $3,050 in 2011 and $3,100 in 2012.
- Family Coverage: maximum annual HSA contribution is $6,150 in 2011 and $6,250 in 2012.
- Catch–up Contribution: for individuals who are 55 or older, the HSA catch-up contribution is increased by statute to $1,000 (unchanged since 2009).
New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:
- Individual Coverage: maximum annual out-of-pocket amount is $5,950 in 2011 and $6,050 in 2012.
- Family Coverage: maximum annual out-of-pocket amount is $11,900 in 2011 and $12,100 in 2012.
Minimum Deductible Amounts for HSA-Compatible HDHPs:
- Individual Coverage: minimum deductible for HDHPs is to $1,200 for 2011 and remains unchanged in 2012.
- Family Coverage: minimum deductible for HDHPs increases to $2,400 for 2011 and remains unchanged in 2012.
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