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Frequently Asked Questions
Frequently Asked Questions (FAQs)
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Disclaimer: The following information is intended to be used only to educate, and should not be construed as offering legal or tax advice, or as an offer to insure. Before taking any actions discussed herein, please consult with your tax advisor, insurance agent, or legal counsel, and/or look at the publications and websites shown in our Resources section.
Q: Aren't group medical rates always lower than individual medical rates?
Q. What is the new Health Savings Account (HSA)?
Q. How does the HSA work and how do I know if I am eligible to start one?
Q: Why would I want to use an HSA?
Q. What makes the Health Savings Account (HSAs) better than the Medical Savings Account (MSAs)?
Q: How do I change from my MSA to an HSA?
Q: What about reporting my 2003 MSA?
Q: What is a Medicare Supplement Policy?
Q: Are all Medi-Gap plans the same?
Q: When should I sign up for Part B of Medicare?
Q: What is Medicare Part D?
A: Medicare Part D is a Prescription Drug program started on 1/1/2006. It is the main insurance program that provides prescription drugs for those people on Medicare and Medicaid. If you decide not to enroll in the drug plan when you are first eligible, you may pay a penalty if you choose to join later.
Your eligibility period starts three months before the month you turn 65 and ends three months after the month you turn age 65.
For more information call 1-800-633-4227, visit www.medicare.gov or call us at 952-922-6625.
Q: Aren't group medical rates always lower than individual medical rates?
A: Not always. Group rates are based on many factors; one is the composition of the pool your group is in, especially if you are a small group. An individual policy usually puts you in a pool with all the individual policyholders of your carrier. That usually is a larger, more diverse pool than the one your small group plan is in. Hence, the rates are spread and can be lower. A second factor is that MN small group is usually issued on a guaranteed basis (no employee excluded for health reasons) which can increase rates. Individual plans, on the other hand, often feature a choice of deductibles--the higher the deductible, the lower the rates. Purchasers of individual plans can choose the amount of cost and risk they want.
However, as each person's situation is different, we suggest that you talk to an insurance agent or your tax advisor before making a decision.
Q: I am a typical smaller employer with 15 employees. Health insurance premiums are becoming so expensive that we may have to stop offering our group medical plan. That seems like a drastic step. Are there any intermediate steps we might take to reduce costs?
A: You're right, it would be a drastic step! Some intermediate steps, Try offering two plan choices with the same insurer and base your company contributions on the less costly plan. Employees wanting the more expensive plan can pay more--it's their choice.
Obtain information about High Deductible Health Plans paired with Health Reimbursement Accounts or Health Savings Accounts. These plans are a form of "consumer-driven health plan" because their design creates incentives for employees to learn more about medical costs and to consider steps toward a healthier lifestyle.
Q: Q. What is a Health Savings Account (HSA)?
A. A powerful tax-advantaged way, for people who have High Deductible Health Plans to save for health care expenses. This provision of the Medicare bill allows eligible individuals to establish Health Savings Accounts (HSAs) as of 1/1/2004. HSAs can be established to receive tax-favored contributions by or on behalf of eligible individuals, and amounts in an HSA may be accumulated over the years or distributed on a tax-free basis to pay or reimburse qualified medical expenses.
Q. How does the HSA work and how do I know if I am eligible to start one?
A. You must use a high-deductible health plan (HDHP) in conjunction with a custodial, tax-exempt savings account (HSA) in which you save money to be used exclusively for healthcare expenses. Unlike a Cafeteria Plan, the money you don't use stays in the account, usually earning some interest. The individual owns the Health Savings Account. The Treasury Department and IRS have published excellent information on this link: http://www.irs.gov/newsroom/article/0,,id=97322,00.html. You will find links on this site for Questions and Answers on HSAs and a Fact Sheet.
Q: Why would I want to use an HSA?
A: Several reasons:
- The interest or other earnings on your assets are tax free.
- You can claim a deduction for your contributions even if you do not itemize your deductions on Form 1040.
- Contributions remain in your HSA from year to year until you use them.
- HSA holders can make tax-free withdrawals for qualified medical expenses not covered by the HDHP, e.g. many dental and vision expenses and long term care premiums.
- An HSA is "portable". If in the future an HSA holder is not covered by a HDHP, the holder may still take tax-free withdrawals from the account for qualified medical expenses up the balance in the account.
- An HSA can accept contributions from the individual owner (employee) as well as an employer. This is a big change.
Q: How do I start an HSA?
A: First you need to have a high deductible health plan that meets the IRS qualifications. If you are interested, contact us and we can discuss with you your eligibility, the types of plans available and whether this type of plan seems appropriate for your needs. We want to help you make an informed decision.
Q: What is a Medical Savings Account (MSA)? Now that HSAs are available, will MSAs be around?
A: It is a tax-effective health plan set up by Congress to provide health benefits for self-employed persons (sole proprietors, partners, LLC, S-Corp usually) and small businesses (50 and under). However, many companies that provide custodial accounts for MSAs are now planning to roll those MSAs over into HSAs. Some companies may allow individuals who already own an MSA to keep it, but the advantages to an HSA would encourage most individuals to roll to an HSA.
Q. What makes Health Savings Accounts (HSAs) better than Medical Savings Accounts (MSAs)?
A. The HSA allows any eligible individual (see IRS link above for eligible individuals) to open a Health Savings Account, not just the self-employed and small companies who were provided for in MSAs. Also, HSAs allow individuals to contribute amounts equal to the deductible (subject to a cap of $2,600 for individuals and $5,150 for families), rather the the MSA restriction of only 65% for individuals and 75% for families. In addition, all of the advantages of the MSA are incorporated in the HSA.
Q: How do I change my MSA to an HSA?
A: A company that provides custodial trust accounts for MSA's will decide if the individual owner of the MSA can maintain it or if all MSA holders must roll their accounts into an HSA. You probably will have received information from your MSA custodial account holder, if not, call the custodial account company or your agent. Typically, you fill out an application for an HSA and then fill out a transfer form that rolls your MSA account dollars to a new HSA account. You usually must finish up your MSA administration (make your deposits for the past year) before you set up a new HSA and do a rollover. Again, ask the company or your agent.
Q. What about reporting my 2003 MSA?
A. For more information on the Medical Savings Account, see Publication 969 in our Resources section.
Q: What is a Medicare Supplement Policy?
A: It is a health insurance policy sold by private companies to fill the “gaps” in original Medicare Plan coverage—hence the name, “MediGap” coverage. To purchase this insurance, you generally must already subscribe to Medicare Part A and Part B. Typically, you have a 6-month open enrollment period starting on the first day of the month in which you are both 65 or older and are enrolled in Medicare Part B.
Q: Are all Medi-Gap plans the same?
A: There are several plans offered in Minnesota. They are all Medicare-approved, but they are not just alike. We would be happy to discuss your circumstances and show you plans that fit your needs. If you did not sign up during your open enrollment and would like to sign up now, contact us. We can discuss your options. In all cases, Medicare is the agency that determines policy and procedure. See our Resources section for Medicare websites and publications.
Q: When should I sign up for Part B of Medicare?
A: There are reasons why you might delay starting Part B (see next question), however, most people start Part B when they start Medicare. If you have any doubts or questions, call Medicare 1-800-633-4227, check with the Medicare website or call us at 952-922-6625.
Q: Should I sign up for Part B if I (or my spouse) am still working and I am covered by an employer or union group health plan?
A: You definitely want to know your options. Once you sign up for Part B, you typically have 6 months to buy a Medi-Gap plan with no health questions. If you are covered under a group health plan through an employer or union, you may want to delay adding Part B until the employment is terminated or group coverage is ended. Definitely check with your employer, read the government publication Choosing a Medi-Gap Policy or call us at 952-922-6625.
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