Salespeople often are advised not to talk about politics or religion, and for good reason. People have strong opinions about these two issues, and being too open about our views is a good way to run off potential customers. Brokers seem to take the “mum's the word” approach on two other subjects as well: COBRA and taxes. The difference is that, in this case, it's our silence that could cost us the business.
So why would an advisor steer clear of these topics in particular? The reason we give our clients is that they fall under the category of employer or tax law, not insurance law, and any advice we provide is not covered by our errors & omissions insurance. The real reason, of course, is that we sometimes don't know the correct answer. If we did, we wouldn't be so worried about misadvising them. Unfortunately, health reform is a game changer that's forcing brokers to redefine themselves as consultants.
Going forward, we'll need to do a much better job of proving our value to our clients; in this new role, “pass” is not an appropriate answer when they ask us a difficult question. Does that mean we need to become experts on everything? Of course not. But we do need to know the basics and be able to point our clients in the right direction. With COBRA that's fairly easy — a number of reputable third party administrators provide COBRA administration services for a very reasonable price.
Convincing our clients they need professional help in this area isn't a difficult sell, and they'll usually go with whatever TPA we recommend. For health savings accounts, though, it's a different story. HSAs are individually owned accounts, and the employee, not the employer, is responsible for keeping up with the paperwork. There are things account holders need to know up front — when they sign up for an HSA — so they're not surprised at tax time, and it's the broker's job to tell them.
So here's a little tutorial that should teach you just enough to be dangerous. When an individual has an HSA, he needs to file IRS Form 1040, the long form. He can no longer file form 1040-EZ. He'll also need to complete form 8889.
This form is a page-and-a-half long and is designed to find out four things:
- How much we contributed to our HSA through payroll (pre-tax employer or employee contributions, reported in box 12 of our W-2);
- How much we contributed directly to our account (after-tax contributions determined from our records or from calling the HSA administrator; later reported on Form 5498-SA, an informational document we receive from our HSA administrator in May);
- How much we withdrew from our account (reported on Form 1099-SA, sent to us by our HSA administrator in late January), and
- How much of what we withdrew was for eligible expenses (determined from the receipts, EOBs, and other records we should be keeping in a file folder or shoebox). Form 8889 also helps us calculate any taxes and/or penalties we may owe for over-contributing to our HSA or for spending HSA money on non-qualified expenses.
To help determine what expenses are eligible, we can refer to IRS publication 502: Medical and Dental Expenses. This publication is actually for people who are deducting medical expenses that exceed 7.5 percent of their income (10 percent beginning in 2013) but is useful for HSA account holders as well. For more information on HSAs and other tax-advantaged accounts, refer to IRS Publication 969.
This booklet has basic info on health savings accounts, health reimbursement arrangements, and flexible spending accounts and explains who is eligible and how much they can contribute. This is not a comprehensive list, but it will get account holders off to a good start and help them overcome the concern they have about the paperwork required if they select the HSA option. For more HSA tax info, check out my BenefitsPro blog posts on this topic.
Eric Johnson can be reached at 817-366-7536 or on LinkedIn at www.linkedin.com/in/ericjohnson262.
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