As an Employer, it’s easy to get overwhelmed with choices when it comes to Health Insurance. Complexities between plan designs, funding options, and various accounts (Flexible Spending Accounts, Health Reimbursement Accounts, Health Savings Accounts etc.,) make it difficult for Organizations to know if their Benefit Plan is competitive & effective. While there is never a “one size fits all solution,” there are many great benefits to incorporating a Health Savings Account (HSA) as an option for employees.
For starters, an HSA allows your employees to set aside money on a pre-tax basis to pay for qualified medical expenses.[1] The money set aside can be used for deductibles, copayments, coinsurance, as well as other qualified expenses. By incorporating this account, your employees have the following advantages:
1. Tax Benefits – Triple Tax Advantage
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- Pre-tax dollars: Employees in the 20% tax bracket who contribute $2,000 (subject to annual limits) a year towards their HSA reduce their taxes by $400 because every dollar they contribute to their HSA is not taxed.
- The funds grow tax-free: Interest earned is not taxable. Many HSAs have various investment options like mutual funds, stocks, bonds, etc.
- Money withdrawn is tax-free when used for qualified medical expenses. A list of common IRS-qualified medical expenses can be found here. IRS Qualified Medical Expenses – HSA Bank
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2. Lower Premiums
To open an HSA, you must be enrolled in a Qualified High Deductible Health Plan (HDHP). Because of the higher deductible, HDHPs typically offer lower monthly premiums. This allows healthy employees with lower healthcare utilization rates to keep healthcare costs down.
3. Control/Flexibility
When employees contribute more in a year than they spend in healthcare costs, 100% of the excess dollars rollover. This allows employees unused HSA funds to accumulate over time and grow for future Healthcare Expenses. Employees decide how much they contribute & how to best spend their money. Employees can also take their HSA with them if they switch jobs or switch to another Qualified HDHP. Beginning in 2022, employees can contribute up to $3,650 for individual coverage & $7,300 for family coverage. If you’re 55 or older, employees can take advantage of a catch-up provision that allows them to put an additional $1,000 per year into their HSA.
Overall, an HSA is a cost-effective vehicle that can potentially reduce your employees’ out-of-pocket expense for Health Insurance. While this isn’t a fit for every employee, it’s important to constantly look at healthcare options and stay competitive when it comes to employee benefits.
[1] https://www.healthcare.gov/glossary/health-savings-account-hsa/
Christian Mosier- Benefits Consultant
This blog post is not intended to exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
