High Deductible Health Plans (HDHPs) and Health Savings ...

HSA Eligibility Requirement #
Coverage

 Health FSAs can be desig
rollover

 This small rollover could c
HSA eligible

 Could design it so that the
forfeit the rollover at the

 Employer should consider
these issues

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#2—No Other Impermissible

gned to have a $500
cause a person to not be
e person has the right to
beginning of the year
r educating employees on

ancisco, California 94111 26

HSA Eligibility Requirement #
Coverage

 From IRS Notice 2004-50

> Q-10. Does coverage un
Program (EAP), disease m
wellness program make
contribute to an HSA?

> A-10. An individual will n
individual…solely becaus
under an EAP, disease m
wellness program if the p
significant benefits in the
treatment...

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#2—No Other Impermissible

0

nder an Employee Assistance
management program, or
an individual ineligible to
not fail to be an eligible
se the individual is covered
management program or
program does not provide
e nature of medical care or

ancisco, California 94111 27

HSA Eligibility Requirement #
Coverage

 IRS Notice 2004-50 contains numero
> Example (1). An employer offers
with benefits under an EAP, rega
The EAP is specifically designed t
productivity by helping employee
work concerns that affect job per
The benefits consist primarily of
counseling to identify an employe
performance and, when appropri
organization, facility or program
problem. The issues addressed d
include, but are not limited to, su
health or emotional disorders, fin
dependent care needs. This EAP
benefits in the nature of medical

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#2—No Other Impermissible

ous examples. Below is one example.
s a program that provides employees
ardless of enrollment in a health plan.
to assist the employer in improving
es identify and resolve personal and
rformance and the work environment.
free or low-cost confidential short-term
ee's problem that may affect job
iate, referrals to an outside
to assist the employee in resolving the
during the short-term counseling
ubstance abuse, alcoholism, mental
nancial or legal difficulties, and
P … does not provide significant
care or treatment.

ancisco, California 94111 28

HSA Eligibility Requirement #
Coverage

 Coverage provided by on-site clinics
 An example in that Notice states that

offer the following without jeopardizi
physicals and immunizations, (2) inje
(e.g., performing allergy injections),
nonprescription pain relievers, and (4
accidents at the plant
 If the employer’s on-site clinic offers
medical benefits, employees who hav
“eligible individuals” for purposes of
 There is no IRS guidance that addres
paying at least fair market value for
arguably that should work

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#2—No Other Impermissible

was addressed in IRS Notice 2008-59
t the employer’s on-site clinic could
ing the employees’ HSA eligibility: (1)
ecting antigens provided by employees
(3) a variety of aspirin and other
4) treatment of injuries caused by

free or reduced-cost significant
ve access to the clinic will not be
the HSA rules
sses the consequences of an employee
his or her on-site clinic benefits—but

ancisco, California 94111 29

HSA Eligibility Requirement #
Coverage

 Telemedicine

> It depends on the covera
> Is it like the EAP exceptio

significant benefits in the
treatment...
> Or does that telemed do
the employee’s illness?

• If so, seems like impermis

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#2—No Other Impermissible

age provided
on—does not provide
e nature of medical care or
octor prescribe drugs to treat

ssible coverage

ancisco, California 94111 30

HSA Eligibility Requirement #
Medicare
 Individuals who are “entitled t

not eligible to contribute to an
 To be entitled to Medicare, an

both eligible for Medicare AND
 If an individual is enrolled in e

Medicare, he/she cannot contr
individuals already receiving S
benefits prior to age 65, enrol
automatic upon reaching age
 Individuals who have not yet a
benefits prior to age 65 must a
for Medicare benefits in order

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#3—Not Enrolled in

to Medicare benefits” are
n HSA
n individual generally must be
D enrolled in Medicare
either Part A or Part B of
ribute to an HSA. For
Social Security retirement
llment in Medicare Part A is
65
applied for Social Security
affirmatively file an application

to enroll in Medicare

ancisco, California 94111 31

HSA Eligibility Requirement #
Medicare
 In general, an individual alread

benefits cannot waive Medicar
automatically be enrolled in Pa

> That is, if an individual is rece
he/she cannot opt out of Med
participation in an HSA

 For Social Security benefits du
the age at which a person ma
unreduced benefits

> However, no matter what a p
person may start receiving So
amount) as early as age 62, if

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#3—Not Enrolled in

dy receiving Social Security
re Part A—he/she will
art A of Medicare at age 65

eiving Social Security benefits,
dicare Part A in order to qualify for

ue to age, “full retirement” age is
ay first become eligible for full or

person’s full retirement age is, a
ocial Security benefits (at a reduced
f certain requirements are met

ancisco, California 94111 32

HSA Eligibility Requirement #
Medicare

 If an individual does not enroll in
eligible (and is not enrolled in So
in Medicare (either through enrol
or enrollment specifically for Med
months

> Example from CMS: Part A covera
age 65, provided he or she files an
Security or RRB benefits) within 6
becomes age 65. If the application
age 65, Part A coverage will be ret

 Therefore, in the example above,
enrolled in Medicare Part A for th
him HSA ineligible for those six m

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#3—Not Enrolled in

n Medicare when he/she is first
ocial Security), his later enrollment
llment for Social Security benefits
dicare) may be retroactive for six

age begins the month the individual turns
n application for Part A (or for Social
months of the month in which he or she
n is filed more than 6 months after turning
troactive for 6 months

, the individual will be retroactively
he preceding six months, making
months

ancisco, California 94111 33

HSA Eligibility Requirement #
Dependent on Someone Else’

 The deduction for HSA co
to any individual who can
exemption deduction (e.g
another taxpayer’s federa

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#4—Not Claimed as
’s Tax Return

ontributions does not apply
n be claimed as a personal
g., as a “dependent”) on
al income tax return

ancisco, California 94111 34

HSA Contributions

 The annual HSA contribution l
only coverage or $6,750 for fa
each month, and a contributio
in which the individual actually
full-contribution rule as meetin

 An individual who was an eligi
contribution for a month in wh
even if he or she ceases to be

 HSA contributions for the eligi
must be made by the date for
tax return for that year

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limit (for 2016, $3,350 for self-
amily coverage) is calculated
on can be made only for months
y meets (or is treated under the
ng) all the requirements
ible individual may make an HSA
hich he or she was HSA-eligible,
e an HSA-eligible individual
ible individual's taxable year
r filing his or her federal income

ancisco, California 94111 35

HSA Contributions

 An additional annual “catch-up” c
be made for eligible individuals w

> A married couple may make two
spouses are at least age 55, but
the name of each spouse

 In addition, under the full-contrib
is also permitted for someone wh
of the year if the individual is an
of that year

> However, the individual will suffe
she does not remain HSA-eligible
disability) during the 13-month “
December of the year for which t
ends on the last day of the 12th

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contribution (currently $1,000) may
who are age 55 or over

HSA catch-up contributions if both
a separate HSA must be established in

bution rule, a full yearly contribution
ho is HSA-eligible for only a portion
eligible individual on December 1st

er adverse tax consequences if he or
e (for reasons other than death or
“testing period,” which begins with the
those contributions were made and
month following that December

ancisco, California 94111 36

HSA Contributions

 HSA contributions are non
 The IRS has provided gui

where mistaken HSA cont
to the employer (IRS Noti

> the employee on whose beha
the HSA contributions was ne

> the employer mistakenly cont
excess of the contribution lim

> There is “clear documentary e
was an administrative or proc

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nforfeitable

idance on limited situations
tributions can be returned
ice 2008-59)

alf the employer mistakenly makes
ever eligible for HSA contributions;
tributes to the employee’s HSA in
mits; or
evidence demonstrating that there
cess error”

ancisco, California 94111 37

HSA Contributions

 In a recent IRS Chief Counsel Me
examples of the type of errors wh

> An amount withheld and deposite
period that is greater than the am
salary reduction election

> An amount that an employee rec
the employer did not intend to co
an incorrect spreadsheet is acces
names are confused with each ot

> An amount that an employee rec
is incorrectly entered by a payrol
third-party) causing the incorrect
contributed

> An amount that an employee rec
because duplicate payroll files ar

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emo, it provided some additional
hich may be corrected:

ed in an employee's HSA for a pay
mount shown on the employee's HSA

ceives as an employer contribution that
ontribute but was transmitted because
ssed or because employees with similar
ther
ceives as an HSA contribution because it
ll administrator (whether in-house or
t amount to be withheld and

ceives as a second HSA contribution
re transmitted

ancisco, California 94111 38

HSA Contributions

> An amount that an employee rec
change in employee payroll elect
amounts withheld and contribute
employee elected

> An amount that an employee rec
amount is calculated incorrectly,
elects a total amount for the yea
an incorrect number of pay perio

> An amount that an employee rec
the decimal position is set incorre
than intended

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ceives as an HSA contribution because a
tions is not processed timely so that
ed are greater than (or less than) the

ceives because an HSA contribution
such as a case in which an employee

ar that is allocated by the system over
ods
ceives as an HSA contribution because
ectly resulting in a contribution greater

ancisco, California 94111 39

HSA Contributions

 Excess HSA contributions ar

> not deductible (if made post-t
individual’s income (if made p

> subject to a 6% excise tax for

 To avoid the 6% excise tax
individual can:

> withdraw the excess contribut
extensions, of his or her tax r
were made; and

> withdraw any income earned
and include the earnings in “O
return for the year the contrib
withdrawn

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Telephone: 415-788-3111 | Facsimile: 415-421-2017

re:

tax) or not excludable from the
pre-tax); and
r each year they remain in the HSA

for excess contributions, the

tions by the due date, including
return for the year the contributions

on the withdrawn contributions
Other income” on his or her tax
butions and earnings were

ancisco, California 94111 40

HSA Distributions

 HSA account holders generally
at any time and for any purpo

> HSA trustee/custodian may place
amount and frequency of distribu

 HSA distributions are tax-free
expenses”

> Defined as expenses for medical
the account holder and his or he
extent that those amounts are no
otherwise

> For taxable years beginning after
drugs (other than insulin) can on
“prescribed” (regardless of wheth
prescription)

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y can receive HSA distributions
ose

e reasonable restrictions on minimum
utions

if made for “qualified medical

care under Code Section 213(d), for
er spouse or tax dependents, to the
ot reimbursed by insurance or

r December 31, 2010, medicines and
nly be qualified medical expenses if
her they can be obtained without a

ancisco, California 94111 41

HSA Distributions

 HSA distributions other than for q
included in the HSA holder’s gros
an additional 20% tax

 This additional tax does not apply

> payments made following the acc
> payments made after the accoun
> payments made after the accoun
> excess contributions returned to

accordance with Code’s requirem
> permitted rollover contributions t

 The HSA trustee/custodian and th
required to determine whether H
qualified medical expenses

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qualified medical expenses are
ss income and generally subject to

y for:

count holder's death;
nt holder has attained age 65;
nt holder becomes disabled;
the account holder, if done in
ments; and
to an HSA

he contributing employer are not
HSA distributions are used for

ancisco, California 94111 42

HSA Trust/Custodian R

 HSAs must be established
trustee or custodian

> Banks
> Life-insurance companies
> Approved IRA and Archer MSA

 Entities other than banks
certain requirements can
non-bank trustees in acco
procedures for non-bank

 In all cases, a written trus

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Telephone: 415-788-3111 | Facsimile: 415-421-2017

Requirements

d with a qualified HSA

A custodians

and insurers who satisfy
request approval to be
ordance with the
IRA trustees
st agreement is required

ancisco, California 94111 43

HSA Reporting

 HSA Trustee/Custodian Report

> Must report contributions on Form
Medicare Advantage MSA Inform

> Must report account distributions
an HSA, Archer MSA, or Medicare

> Forms 5498-SA and 1099-SA mu
must be provided to the account

 HSA Account Holder Reporting

> Must report contributions and dis
Savings Accounts (HSAs))—filed

> Must report uncorrected excess c
Taxes on Qualified Plans (Includi
Accounts)

 Contributing employers must r
Box 12 of the employee’s Form

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ting Obligations

m 5498-SA (HSA, Archer MSA, or
mation)
s on Form 1099-SA (Distributions From

e Advantage MSA)
ust be filed with the IRS, and a copy
t holder

g Obligations

stributions on Form 8889 (Health
as an attachment to Form 1040
contributions on Form 5329 (Additional
ing IRAs) and Other Tax-Favored

report employer contributions in
m W-2 (Code W)

ancisco, California 94111 44

Additional Rules

The next slides will discuss:
 Certain Affordable Care A
 Application of ERISA to H

 The need for a Section 125

 The Cadillac Tax

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:
Act rules;
HSAs;

plan; and

ancisco, California 94111 45

Additional Rules—ACA

 Separate from the HDHP rules,
pocket maximums for in-networ
non-grandfathered group health

 For 2016, those limits are: $6,8
$13,700 for other-than-self-only

 Beginning in 2016, ACA also req
of-pockets for in-network benef
coverage (if non-grandfathered
the plan’s other-than-self-only o
maximum permitted out-of-pock

 According to IRS/DOL FAQ, an
complies with both the applicab
embedded out-of-pocket maxim

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ACA limits permissible out-of-
rk essential health benefits under
h plans.
850 for self-only coverage; and
y coverage
quires “embedded” individual out-
fits under other-than-self-only
d) in certain cases—essentially if
out-of-pocket is greater than the
ket for self-only coverage
employer can offer an HDHP that
ble IRS HDHP limits and the
mum

ancisco, California 94111 46

Additional Rules—ACA

 Example of Embedded Out-of-Poc

> For 2016 in-network benefits, an H
$13,000 out-of-pocket maximum fo
Because this out-of-pocket maximu
permitted out-of-pocket maximum
$6,850 self-only out-of-pocket max

> Individual #1 incurs $8,000 in eligi
incurs $4,000 in eligible in-network
Individual #2 has incurred any oth

> The plan must cover $1,150 of Ind
- $6,850) with no cost-sharing—ev
maximum for other-than-self-only

> However, the plan can apply cost-s
in-network expenses because Indiv
embedded out-of-pocket maximum
maximum for other-than-self-only

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cket Maximums

HDHP provides a $2,600 deductible and
or other-than-self-only coverage.
um is greater than the ACA’s maximum
for self-only coverage ($6,850), the
ximum applies to each covered individual.
ible in-network expenses. Individual #2
k expenses. Neither Individual #1 nor
her expenses.
dividual #1’s in-network expenses ($8,000
ven though the $13,000 out-of-pocket
coverage has not been met.
sharing to all of Individual #2’s $4,000 in
vidual #2 has not met his/her $6,850
m and the $13,000 out-of-pocket
coverage has not been met.

ancisco, California 94111 47

Additional Rules—ERIS

 There are two instances w
to an HSA—if the HSA me
harbor requirements set f
Section 2510.3-1(j) (“Volu
meets the test set forth b
Assistance Bulletins 2004-
FABs”)

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SA

when ERISA will not apply
eets the voluntary plan safe
forth in DOL Regulation
untary Plan”) or if the HSA
by the DOL in Field
-01 and 2006-02 (“DOL

ancisco, California 94111 48

Additional Rules—ERIS

 Voluntary Plan. Of the m
Voluntary Plan rule, there
which likely cannot be me
“endorse” the plan and (2
make any contributions to

 With regards to endorsem
have found endorsement
is associated with the plan
information distributed to
contained the employer’s

 Likely cannot meet this ex

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SA

many requirements for the
e are two requirements
et: (1) the employer cannot
2) the employer cannot
o the plan
ment, several court cases

when the employer’s name
n—such as where
o employees about the plan
logo
xception from ERISA

ancisco, California 94111 49

Additional Rules—ERIS

 DOL FABs. The following require

must be met in order for an HSA
> (1) the employees’ contributio

voluntary;
> (2) the employer must not lim

to another HSA;
> (3) the employer must not im

the HSA funds;
> (4) the employer must not ma

decisions;
> (5) the employer must not rep

plan; and
> (6) the employer must not rec

compensation in connection w

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SA

ements (set forth in the DOL FABs)
to be exempt from ERISA:
ons to the HSA must be completely

mit employees’ ability to move funds

mpose conditions on the utilization of

ake or influence HSA investment

present that the HSAs are an ERISA

ceive any payment or
with the HSA

ancisco, California 94111 50