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HSA & HRA Plans Frequently Asked Questions

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General Information

What is a High Deductible Health Plan (HDHP)?

Answer: For 2010, an HDHP is a health insurance plan with minimum annual deductibles of $1,200 for individuals or $2,400 for family coverage. The annual out-of-pocket maximums (including deductibles, coinsurance and copayments but not including premiums) cannot exceed $5,950 for individuals or $11,900 for family. The limits are indexed annually by the IRS. Limits for 2011 are expected to be released in May.

What is a "qualified medical expense"?

Answer: Qualified medical expenses include medical expenses as defined under Section 213(d) of the IRS code. Expenses include medically necessary services, amounts paid toward deductibles and coinsurance, glasses, dental, and prescription and non-prescription drugs. Generally, these include most medical expenses, including doctors’ fees, hospital charges, prescription and nonprescription drugs, vision and dental care, qualified long-term-care insurance premiums and COBRA premiums (to continue coverage under a group plan after you leave a job).

Refer to the IRS Web site for a complete list of 213(d) expenses at  http://www.irs.gov/pub/irs-pdf/p502.pdf.

Please note that funds from a Health Savings Account can only be used for qualified medical expenses on a tax preferred basis. HSA funds not used for qualified medical expenses are subject to taxation and penalties. Rules for a Health Reimbursement Arrangement are more flexible, and can vary by employer.

Are prescription drug deductibles integrated with medical deductibles?

Answer: HSA plans must have a combined medical and drug deductible, out-of-pocket maximum, and lifetime maximum. HRA plans can feature integrated or separate drug deductibles and maximums. However, groups with fewer than 200 enrolled contracts may not carve out prescription drug coverage.

Is vision coverage included in HSA, HRA, and compatible plans?

Answer: Employers offering HRA plans will include vision coverage. Vision coverage is optional for employers offering HSA plans. Contact your benefits administrator if you have questions.

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Health Reimbursement Account

What is a Health Reimbursement Arrangement?

Answer: A Health Reimbursement Arrangement (HRA) allows your employer to allocate a specific amount of money to reimburse each employee’s out-of-pocket medical expenses. These health care expenses may include deductibles, copayments, prescription medications, dental services and other health-related expenses that may not be covered under the healthcare plan. The money contributed by your employer is tax-free to you.

How does an HRA work?

Answer: First, your employer sets up the HRA and determines the amount of money that will be available to each employee for the coverage period. The employer also determines the types of expenses the funds can be used for. If your employer chose to use Carefirst's Fund Administrator, deductible, coinsurance and copayment information for claims processed under your health plan and prescription drug program (if you have a combined medical and prescription drug deductible) will automatically be transferred to your HRA for reimbursement. However, if your employer chooses another Administrator, you will have to submit reimbursement claims to the Fund Administrator.

When does my employer put money into my HRA?

Answer: Your employer can choose to allocate funds to your HRA with an annual contribution or on a monthly basis. An annual contribution means funds are available from the first day of coverage. If your employer chooses a monthly accrual, the contribution is prorated by month. For example, for a $1,200 annual HRA that is funded monthly, you have access to $100 in the first month of coverage. An additional $100 will be added to your HRA each month for a total yearly contribution of $1,200.

What is the difference between an HRA and a Flexible Spending Account (FSA)?

Answer: Both HRAs and FSAs allow an individual to pay medical bills with pre-tax dollars. HRAs are employer funded, which means your employer determines the amount of money that goes into an HRA account. Flexible Spending Accounts (FSA) are employee-funded, which means you determine the amount of money that you will contribute to your FSA. The funds are generally deducted from your payroll check. One key difference, however, is that HRA funds may be eligible for roll over from year to year (determined by your employer), while FSA money left unspent at the end of the year is forfeited.

How do I receive reimbursement from my HRA?

Answer: Deductible, coinsurance and copayment information for claims processed under your health plan and your Prescription Drug Program (if you have a combined medical and prescription drug deductible) will automatically be transferred to your HRA for reimbursement to you. For eligible expenses that are not covered under your health plan and Prescription Drug Program, you can submit a claim for reimbursement from your HRA. 
Complete an HRA Claim Reimbursement Form and fax it to BlueFund Administration at 301-564-5191 or mail the claim to the BlueFund Administration address on the form (13511 Label Lane, Suite 201, Hagerstown, MD 21740). A claim form can be downloaded from the Member & Visitors Forms page on www.carefirst.com.

Can my HRA funds be used to cover the amount I pay for health insurance premiums?

Answer: No. However, in many cases, the HRA is combined with a Premium Only Plan that allows the employer to make contributions to premiums on a pre-tax basis. Ask your employer for details.

What happens to my HRA funds that are not used by the end of the plan year?

Answer: This is determined by your Employer. Your employer may allow you to carry over all the unused funds into the next plan year, carry over a percentage of the unused funds or retract the unused funds.

What happens to my HRA funds when I terminate my employment?

Answer: It’s up to your employer. Since they have contributed to the HRA, your employer can either retract the funds or allow you to spend them over a specified period of time. Contact your employer for further information.

Will I be taxed on my HRA?

Answer: Since your employer funds the HRA, you aren’t taxed on the HRA contribution your employer makes on your behalf.

How fast are reimbursement checks sent to the member?

Answer: Reimbursement checks are prepared and sent weekly.

Do you impose a minimum before a distribution can be submitted or reimbursed?

Answer: Weekly reimbursement checks are subject to a minimum of $25. Once the $25 minimum amount is reached, a check will be issued. At the end of a plan year the minimum is waived so that (if needed) a check below $25 will be issued.

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Health Savings Account

What is a Health Savings Account?

Answer: A Health Savings Account (HSA) is a tax-advantaged bank account that is always combined with a high deductible health plan (HDHP). It is:

  • a true cash account that is accessible to you
  • an interest-accruing account, similar to an Individual Retirement Account (IRA)
  • established for eligible individuals by employers, their employees or the individuals themselves
  • an account whose balance rolls over year after year
  • not required to be funded every year

Note: For 2010, an HDHP is a health insurance plan with minimum annual deductibles of $1,200 for individuals or $2,400 for family coverage. The annual out-of-pocket maximums (including deductibles, coinsurance and copayments but not including premiums) cannot exceed $5,950 for individuals or $11,900 for family. The limits are indexed annually by the IRS.

What are some advantages of the HSA?

Answer: HSAs can help you invest for future health care expenses. The money deposited in HSAs can be used for:

           *services not covered by your health plan, now or in the future
           *medical expenses during periods of unemployment
           *medical expenses during retirement
           *insurance coverage after Medicare entitlement (except Medigap)
           *out-of-pocket expenses for Medicare
           *qualified long-term care expenses

How does an HSA work?

Answer: An HSA works in conjunction with a high deductible health plan. All contributions made to an HSA account up to the maximum annual contribution limits are 100% tax-deductible. You can use your tax-deferred dollars to pay for out-of-pocket medical expenses until you meet your deductible, and your health plan pays for expenses in excess of the deductible amount. You can also use the funds to pay for medical expenses not covered under your health plan, such as dental, vision and alternative medical expenses. Optionally, you can pay for your medical expenses out-of-pocket and let the balance of your HSA account grow tax deferred. 

What happens if my medical expenses are less than my annual deductible?

Answer: The money in an HSA belongs to the individual owner and any unspent money will roll over from year to year. The less money spent on medical expenses, the more money that will remain in the HSA for future years. Funds remaining in an HSA will earn interest

Who is the custodian for CareFirst's HSA program?

Answer: CareFirst uses several custodians. Depending on your plan, the custodian will be either The Bank of New York (BNY Mellon), UMB, or HSA Bank. The custodian for your HSA and contact information will be included in the materials you receive when your account is established.

How do I open an HSA?

Answer: If you are part of a group plan, your employer may offer an HSA as part of your benefits. You would then be able to open an HSA at the time of enrollment. If your employer does not offer an HSA, or if you have individual coverage, then you may want to research qualified HSA trustees or custodians by going to www.HSAinsider.com.

How do HSAs differ from Flexible Spending Accounts (FSAs)?

Answer: Both HSAs and FSAs allow an individual to pay health care bills with pre-tax dollars. One key difference, however, is that HSA balances roll over from year to year, while FSA money left unspent at the end of the year is forfeited. If your employer offers both, take advantage of both. However, the more money you leave in the HSA, the more you will earn. Once you reach age 65, the money in an HSA effectively becomes a supplemental IRA. You may use it for any purpose, penalty-free

Can I have a flexible spending account with an HSA?

Answer: Yes, but the Health FSA has some limits when you have an HSA. If you have an HSA, your FSA can be used to reimburse dental and vision expenses only. Keep in mind that you can use your HSA to pay for any services that your FSA covered in the past, plus several additional expenses, such as long term care insurance, COBRA premiums, and retiree premiums (excluding Medigap plans).

What happens to the money if I don’t use it by the end of the year?

Answer: The balance in your HSA rolls over from year-to-year and continues to earn interest on a tax-favored basis. You can always access the bank that holds your funds and you can save money for health care expenses over your lifetime.

Are there any penalties?

Answer: If you use HSA funds for expenses that are not qualified medical expenses, those distributions will be subject to ordinary income tax, and, in some cases, a 10% penalty. You should consult with a tax advisor for further guidance.

How often are account statements issued?

Answer: Statements are issued monthly.

Are members required to provide their Social Security Number on the application or enrollment form?

Answer: Yes. Because this is a tax-advantaged account, the IRS requires that a SSN is provided.

What happens when I terminate employment or become ineligible for the HDHP?

Answer: If you terminate employment or become ineligible for the high deducible health plan through your current employer, your fund debit card will be disabled. You will need to request a new debit card from your bank. You may pay for eligible medical expenses by check. You may also want to determine if you are covered under a qualified high deducible medical plan with your new employer in order to continue to make contributions to your HSA. If you are no longer covered by a high deductible health plan, you will no longer be able to contribute to the HSA account; however, you may continue to use the HSA checks to pay for eligible medical expenses.

What are some of the reasons why my debit card may be denied?

Answer: Invalid merchant codes or charges which exceed the available balance are some of the reasons charges may be denied.

What should I do if my card is stolen and/or has fraudulent charges?

Answer: You should contact the financial institution that issued your card.

Will I receive a new card every year?

Answer: No, you will not receive a new card each year. Please continue to use the same card. Your account balance will continue to accumulate. The cards do have an expiration date of three years from the date of issuance and you will automatically receive a new card thirty days prior to the expiration date.

Will my new contributions automatically be added to my card?

Answer: Yes, your balance is checked each time you use the card, so your new contributions will be available.

What are the tax implications of the HSA?

Answer: HSA contributions are pre-tax if made through salary deductions or tax deductible when made through manual contributions. Contributions, earnings and withdrawals (for qualified medical expenses) are not subject to federal tax.

* HSA distributions are tax-free if they are used to pay for qualified medical expenses.
* Distributions made for any other purpose are generally subject to income tax and a 10 percent penalty.
* HSA ownership may transfer to the spouse, upon death, on a tax-free basis
* HSA funds are an interest-accruing cash account and can be invested, when a minimum balance is achieved, in an array of investments that earn greater interest. These earnings are tax-free if funds are spent on qualified expenses.

Do I pay taxes on the money in the account not used for medical expenses?

Answer: Yes. Withdrawals for any expense that is not a "qualified medical expense" are subject to regular income taxes. In addition, a 10% penalty may apply unless the member is over 65 or disabled.

Are all medical expenses paid from the HSA applied to my annual deductible?

Answer: No. The only items applied to the deductible are covered services under the health plan and Prescription Drug Program (if you have a combined medical and prescription drug deductible). While your HSA funds are available for many eligible expenses, some of these expenses may not apply to your deductible. See your benefit guide for covered services under your health plan and Prescription Drug Program that will apply towards your deductible.

What is the HSA claims process for the member's share of medical expenses?

Answer: Typically with a medical service, the provider submits a claim to CareFirst. The provider will be notified of the member liability, at which point they will bill the member. Some providers may provide a bill at the time of service, when the expense isn't covered by the member's plan. The member can pay using the debit card or HSA check, if applicable to your arrangement. The member can also use a personal check, cash, or credit card at the point of sale and then reimburse themsleves using an HSA check or online reimbursement.

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