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Consumer Driven Health Plan/Health Savings Account

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Effective January 1, 2015, Knox employees have a choice between the PPO Health Plan or the Consumer Driven Health Plan (CDHP).

What is a CDHP, and how does it work?

A CDHP is also known as a high deductible health plan. It's a health insurance plan that has a high deductible-the amount of medical expenses you must pay each year before coverage kicks in. While the deductible is high ($1,300 individual/$2,600 family) with this type of plan, the monthly premium is lower for the CDHP than the premium for the PPO.

CDHPs do not start paying until after you have spent $1,300 (individual) or $2,600 (family) of your own money on health care expenses. You can use pre-tax monies from an account called an HSA to pay deductible expenses and other non-covered health care expenses.  Like the PPO plan, once one family member meets their deductible the plan benefits begin.

What is an HSA?

HSAs are like a health IRA where the money in them is only used to pay for health care expenses. You, not your employer, own and control the money in your HSA. The money you deposit into the account is not taxed. To be eligible to open an HSA, you must enroll in a special type of health insurance plan called a CDHP, and have only CDHP health insurance.

Why were HSAs created?

HSAs and CDHPs were created as a way to help control health care claim costs and to help employees make wiser decisions regarding purchasing health care. The idea is that people will spend health care dollars more wisely if they are using their own money to pay for medical costs, they will shop for coverage based on cost and quality, and they will ask questions about whether certain tests are necessary, etc.

Is a CDHP right for me?

Like any health care option, CDHPs have advantages and disadvantages. As you weigh your options, think about your budget and what health care you are likely to need during a plan year. Choosing a CDHP or PPO is based on your individual/family health, projected health care needs and your financial circumstances-- there is not one answer that is right for everyone.

If you are generally healthy and want to save for future health care expenses, a CDHP with an HSA account may be an attractive choice. Or if you are near retirement, a CDHP may make sense because the money in an HSA can be used in future years to offset costs of medical care after retirement.

Illness can be unpredictable and you may be concerned that you are unable to budget for health care expenses -- remember, with a CDHP you are responsible for 100% of your health care and prescription expenses until you reach the deductible amount, and 10% of your in network medical expenses and prescription co-pays  after that until you reach the out of pocket maximum. You can use the pre-tax dollars that you and/or Knox puts into your HSA account for these expenses and if you haven't put enough in, you can increase your pre-tax payroll deductions into your HSA and then reimburse yourself after there is enough money in your HSA account to do so. In addition, at this time in the Galesburg area, information about the cost and quality of medical care may be difficult to find in order to comparison shop.

What are some potential advantages of HSAs?

  • You decide how much of your pre-tax income to set aside for health care costs.
  • You control how your HSA money is spent.
  • Knox will contribute to your HSA in 2015, but you own the account and the money is yours even if you leave Knox or retire.
  • Since you own the account, any unused money at the end of the year stays in your account from year to year until you decide to spend it.
  • You do not pay taxes on money going into your HSA.

What are some potential disadvantages to an HSA?

  • Pressure to save the money in your HSA might lead you to not seek medical care when you need it.
  • If you take money out of your HSA for non-medical expenses, you will have to pay taxes to the IRS, plus a penalty.

Who can set up an HSA?

Knox can set up an HSA account for you at PNC bank, or you can start an account through a different bank or financial institution. To qualify for an HSA, you must be enrolled in a CDHP and not be enrolled in Medicare Part A or B. If you have a spouse who uses Knox insurance as secondary coverage, he or she also must be enrolled in a CDHP at his/her employer.

The CDHP must be your only health insurance-you cannot be covered by any other health insurance. However, having dental, vision, disability and long-term care insurance does not disqualify you from having an HSA.

Who CANNOT participate in an HSA?

  • Anyone who is enrolled for Medicare can use monies deposited into an HSA before Medicare, but can no longer deposit pre-tax monies into an HSA
  • Anyone who can be claimed as a dependent on someone else's tax return
  • Anyone age 65 and over who is enrolled in either Medicare Part A or B
  • Individuals covered by other insurance unless the other insurance is a qualified high deductible plan and HSA eligible

How much money can I deposit annually into an HSA?

The Internal Revenue Service sets the contribution limits annually for HSAs. For 2015, the limit is $3,350 for individuals and $6,650 for family coverage. Individuals who are over age 55 may contribute an additional $1,000 each year to their HSA.

Can I use pretax money to fund an HSA?

Yes, if you enroll in the CDHP, you may deposit money into an HSA on a pretax basis. If you open an HSA on your own, you can deduct your deposits when you file your income taxes (you will receive form 1099 from your bank 0.

Can my employer contribute to my HSA, too?

Yes, your employer can contribute to your HSA. For 2014, Knox College will deposit $250 for an individual and $500 for a family into an HSA account for employees who are enrolled in the Knox College sponsored CDHP. The total of the Knox contribution plus your pre-tax contributions must be within the annual IRS contribution limits.

Are HSAs similar to FSAs?

Yes, but there are several key differences. One difference is the ability to roll over unspent money each year in an HSA. You cannot do that with an FSA.

Only the amount contributed to date in an HSA is available for reimbursement. You can change (start, stop, increase/decrease) the amount you contribute from your paycheck to an HSA at any time, for an FSA you must decide before the beginning of the health plan year how much you wish to contribute in a given plan year.

Another difference is that the money you put into an HSA is yours and you can take it with you if you leave Knox or retire. You cannot take money from an employer-sponsored FSA with you if you quit or change jobs. Finally, it's important to know that in most cases you cannot have both an HSA and an FSA at the same time.

Can I ever have both an FSA and an HSA?

Yes, but you can only have a limited FSA. If you have an HSA, your FSA dollars may only be used for vision and dental expenses and medical expenses incurred AFTER you have met the CDHP plan deductible for the year.

Can I withdraw money from an HSA for non-medical expenses?

Yes, but if you withdraw funds for non-medical expenses before you turn 65, you have to pay taxes on the money plus a 20% penalty. If you take money out of your HSA after you turn 65 for non-medical expenses, you do not have a penalty, but you must still pay taxes on the money.

Knox College

Printed on Thursday, July 30, 2015

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