What is the Health Care Savings Plan?
The Health Care Savings Plan (HCSP) is an employer-sponsored program that allows employees to save money, tax-free, to use upon termination of employment to pay for eligible health care expenses for you, your spouse and legal tax dependents, and your children up to their 26th birthday regardless of their marital status, status as a full-time student, or place of residence.
Employees will be able to choose among seven different investment options provided by the State Board of Investment. HCSP is a tax-free account which means contributions and eligible reimbursements are not reportable on state or federal income tax returns.
What legal authority exists to offer the
MSRS received its private letter ruling establishing the HCSP as a tax-exempt benefit on July 29, 2002.
Chapter 352.98, authorizes Minnesota State Retirement System (MSRS) to offer this program to state employees, as well as all other governmental subdivisions.
Who chooses how contributions will be
made to the HCSP?
Employees covered by a bargaining unit:
Amounts to be put into the account must be negotiated or agreed to by both the bargaining unit and employer and written into the collective bargaining agreement or Memorandum of Understanding (MOU).
Employees not covered by a bargaining unit:
Amounts to be put into the account must be agreed to by the employer and included in a written personnel policy.
What type of contributions can be made
to the plan to receive the favorable
An employer could elect to put a specific dollar amount into employees' accounts, or set aside a percentage of employees' salaries into the accounts.
Mandatory Employee Contributions:
A mandated monthly contribution could be required to be set aside in a plan.
Many public employers pay unused vacation or sick leave at the time of termination. The policy may mandate that all or a portion of this payout be put into the plan.
How would I benefit from the plan?
The HCSP allows employees to set aside money to cover the ever-increasing costs of health insurance and out-of-pocket expenses after termination of public service. While deferred compensation plans or retirement accounts provide a tax-deferred benefit, amounts paid out are considered taxable income. Under the HCSP, amounts contributed are tax-free and no taxes are paid on amounts to pay health, dental and long-term care insurance premiums, as well as, out-of-pocket medical expenses.
This tax advantage could result in significant savings to you and your family. For example, let's say you are eligible for $5,000 in severance. If paid in cash, after subtracting federal, state, and FICA (Social Security and Medicare) taxes, the net amount of the payment would be approximately $3,000. If that same amount was transferred into your Health Care Savings Plan, the entire amount of $5,000 would be available to provide health care coverage.
How does my employer benefit?
The Health Care Savings Plan allows your employer an opportunity to offer a benefit that you can use to cover the rising cost of health care. Employers are not required to pay FICA (7.65%) taxes on amounts contributed to this plan. There are no employer participation fees.
What responsibilities does my employer
have regarding the administration of the
The main responsibility is to determine how contributions will be made to the plan and making contributions to the plan on behalf of eligible employees. MSRS will provide your employer with an employer enrollment kit that includes instructions to help your employer get started. MSRS staff is also available to make on-site visits to explain the benefit and help get you started.
How do I get started?
Once your employer has agreed to participate, and MSRS receives your first contribution, you will receive a welcome packet. This packet will include all HCSP information and any forms you will need to complete. A personal identification number (PIN) will be sent to you so you can access your account online or through the Automated Voice Response (AVR) System on the phone. Remember to:
- Establish how you would like your future contributions invested.
- Complete the Beneficiary Designation form (even if you have a spouse or legal dependents).
How will my assets be invested?
Your money will be invested in the Money Market, an interest bearing account, until you designate otherwise. You will be able to choose among seven different investment options. You may change your investment selections as often as you like. You can contribute to as many of the seven available investments as you wish. It is important to review your investment strategies at least once every year. You can do this and change your allocations by using your PIN to access your account online or by calling us.
Will I receive statements?
Yes. Quarterly statements will be mailed directly to the address we have on file or you can sign up for e-delivery on this website.
What is the cost?
The administrative fees to administer the plan are deducted from your account. The annual fee is 0.65 percent. This fee is prorated and deducted monthly from your account balance. For example, if you have an account value of $10,000, $5.42 per month will be deducted from your account. The maximum annual fee charged on an account will be $140 or $11.67 per month. All fees are subject to change.
In addition, an annual investment expense is charged by the State Board of Investment.
See Investment Performance.
When am I eligible to request reimbursements?
You can access your HCSP account for the reimbursement of eligible medical expenses when you separate from service at any age,
retire, or are collecting a disability benefit from a Minnesota public employer.
Only eligible medical expenses incurred after you leave public employment can be reimbursed. You incur an expense
the date the service is provided, not when the bill is paid.
How will reimbursements be made?
MSRS will reimburse you directly for your out-of-pocket health care expenses.
Payments will be made to plan participants who submit a proper Reimbursement Request form and proof that the expense was incurred.
MSRS can also set you up on a monthly payment schedule for your health insurance premium costs.
Those monthly reimbursements will occur on the last Friday of each month.
How are reimbursements from the HCSP treated for tax purposes?
Reimbursements paid from the Health Care Savings Plan to cover your health insurance and medical expenses will never be taxed. No income tax withholding or reporting is required unless a non-spousal beneficiary has inherited the remaining account balance upon your death.
The account balance can only be used to offset health care costs or the cost of health insurance, and at no time can be accessed for other purposes.
Eligible expenses include those expenses which are deductible for federal income tax purposes. These include expenses related to the diagnosis, care, treatment or prevention of disease. For more information please see Eligible Expenses or IRS Publication 502.