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HSA Q & A
Many of the questions focus on the Health Savings Accounts (HSAs) in general. Members are free to open their HSA with any financial institution. If you have additional questions, please contact your sales consultant.
General HSA Information
Producer-Related Information
General HSA Information
Q. What is an HSA?
A. An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan (HDHP).
Q. Who is eligible to establish an HSA?
A. An "eligible individual" can establish an HSA. An "eligible individual" is any individual who: (1) is covered under an HDHP; (2) is not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage); (3) is not entitled to benefits under Medicare (generally, has not yet reached age 65); and (4) may not be claimed as a dependent on another person's tax return.
Q. How does an eligible individual establish an HSA?
A. Beginning January 1, 2004, any eligible individual can establish an HSA with a qualified HSA trustee or custodian, in much the same way that individuals establish IRAs or Archer MSAs with qualified IRA or Archer MSA trustees or custodians. An eligible individual who is an employee may establish an HSA with or without involvement of the employer.
Q. May a husband and wife have a joint HSA?
A. No. Each spouse who is an "eligible individual" and wants to make contributions to an HSA must open a separate HSA. Thus, only one person may be the account beneficiary of an HSA.
Q. If one or both spouses have family coverage, how is the contribution limit computed?
A. In the case of individuals who are married to each other, if either spouse has family coverage, both are treated as having family coverage. If each spouse has family coverage under a separate health plan, both spouses are treated as covered under the plan with the lowest deductible. The contribution limit for the spouses is the lowest deductible amount, divided equally between the spouses unless they agree on a different division.
Q. When may HSA contributions be made? Is there a deadline for contributions to an HSA for a taxable year?
A. For eligible individuals, the deadline for contributions to an HSA is generally April 15 following the year for which contributions are to be made.
Q. What is the tax treatment of an eligible individual's HSA contributions?
A. Contributions made by an eligible individual to an HSA are deductible by the eligible individual in determining adjusted gross income (i.e., "above-the-line"). The contributions are deductible whether or not the eligible individual itemizes deductions. However, the individual cannot also deduct the contributions as medical expense deductions under IRC section 213.
Q. How much may be contributed to an HSA in calendar year 2007?
A. For calendar year 2007, the maximum monthly contribution for eligible individuals with self-only coverage under an HDHP is 1/12 of the lesser of 100% of the annual deductible under the HDHP (minimum of $1,100) but not more than $2,850. For eligible individuals with family coverage under an HDHP, the maximum monthly contribution is 1/12 of the lesser of 100% of the annual deductible under the HDHP (minimum of $2,200) but not more than $5,650. Although the annual contribution is determined monthly, the maximum contribution may be made on the first day of the year. In addition to the maximum contribution amount, catch-up contributions may be made by individuals age 55 or older and younger than 65.
Q. How is the contribution limit computed for an individual who begins self-only coverage under an HDHP on June 1, 2007 and continues to be covered under the HDHP for the rest of the year?
A. The contribution limit is computed each month. If the annual deductible is $5,000 for the HDHP, then the lesser of the annual deductible and $2,850 is $2,850. The monthly contribution limit is $237.50 ($2,850/12). The annual contribution limit is $1,662.50 (7 x $237.50).
Q. How many individuals use the funds within an HSA?
A. 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. Distributions from an HSA used exclusively to pay for qualified medical expenses of the account beneficiary, his or her spouse, or dependents are excludable from gross income.
Q. What are the "qualified medical expenses" that are eligible for tax-free distributions?
A. The term "qualified medical expenses" are expenses paid by the account beneficiary, his or her spouse or dependents for medical care as defined in IRC section 213(d), but only to the extent the expenses are not covered by insurance or otherwise. The qualified medical expenses must be incurred only after the HSA has been established.
Q. Are health insurance premiums qualified medical expenses?
A. Generally, health insurance premiums are not qualified medical expenses except for the following: qualified long-term care insurance, COBRA health care continuation coverage, and health care coverage while an individual is receiving unemployment compensation. In addition, for individuals over age 65, premiums for Medicare Part A or B, Medicare HMO, and the employee share of premiums for employer-sponsored health insurance, including premiums for employer-sponsored retiree health insurance can be paid from an HSA. Premiums for Medigap policies are not qualified medical expenses.
Q. Must HSA trustees or custodians determine whether HSA distributions are used exclusively for qualified medical expenses?
A. No. HSA trustees or custodians are not required to determine whether HSA distributions are used for qualified medical expenses. Individuals who establish HSAs make that determination and should maintain records of their medical expenses sufficient to show that the distributions have been made exclusively for qualified medical expenses and are therefore excludable from gross income.
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Producer-Related Information
Q. Is there any difference in underwriting for HSA plans?
A. No.
Q. Do brokers need a security license to sell HSA plans?
A. Not for the accounts themselves.
Q. If a producer moves a client from BlueValue to an HSA plan using a change of coverage form, does pre-existing start up again?
A. No.
Q. What benefits in the BlueEdge plans are subject to the deductible?
A. All benefits are subject to the deductible.
Q. Regarding the BlueEdge products, is there a separate out-of-pocket maximum for out-of-network providers?
A. Out-of-pocket maximums double when using a non-participating provider. The individual out-of-pocket maximum becomes $6,000 and the family out-of-pocket maximum becomes $12,000. Refer to page one of the Outline of Coverage for the BlueEdge Individual HSA. The deductibles remain the same whether in-network or out-of-network.
Q. Can a current BCBSIL member convert from an existing plan to a BlueEdge plan?
A. Yes. Upgrade/downgrade rules would apply. Please see page 12 of our Product Guide for further information.
Q. There appears to be no family discount for the BlueEdge product for two adults. Is that true?
A. There is a 10% family discount that applies to purchasing family coverage. The discount does not apply to maternity coverage premium.
Q. I want to confirm that the BCBSIL High Deductible Plan is still being offered.
A. No, the High Deductible Plan is no longer being offered.
Q. If a member is returning to a foreign country can they continue their BCBSIL plan and HSA account?
A. Yes. Premiums would increase to Area 1 rates.
Q. Is the new Illustration software available?
A. Yes. You can download updated software at www.bcbsil.com/dmagents.
Q. Is it possible to have BCBSIL send out notices to brokers of rate increases on each of their major medical policies that will be receiving premium increases 60 days in advance like other carriers?
A. We currently do not have that capability. We do however have several tools available for our Producer network to utilize in helping conserve our mutual blocks of business. First, we notify our Producers of any pending rate actions 60 days in advance in most circumstances via our "Producer Update" communication. Additionally, for our under age 65 policies, Hallmark Service Corporation has a producer Web site www.hcsil.com that will allow registered Producers to view the renewal dates and rates of their policyholders well in advance.
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