Health Savings Accounts, or HSAs, have been around for over 15 years. HSAs are a great way to help employees take more ownership of their healthcare and to even save money for out of pocket medical expenses. However, HSAs and their underlying health plans must be set up correctly for employers and employees to realize savings and tax advantages.
Benefits of HSAs
HSAs offer a triple tax advantage to employees. When an employee chooses to make contributions to an HSA, the money comes out of their paycheck on a pre-tax basis. The money can earn interest in the account and that interest accumulates tax-free. Then, when the funds are withdrawn from the account, they are not taxable, as long as they are used for qualified medical expenses. But the tax savings aren’t only for the employees! Employers can save money by implementing these plans as well. First, when employees avoid payroll taxes by putting money in an HSA, employers also avoid their matching taxes.
High Deductible Health Plans
HSAs are typically paired with a High Deductible Health Plan (HDHP). HDHPs, as the name would imply, have higher deductibles than traditional health plans and, in return, the premiums are lower. The money saved in premiums could be used to pay the higher out of pocket cost for medical services or, if little medical care is required, the money could accumulate in the HSA.
The lower cost of HDHPs can benefit the employer as well. Most companies will find that the cost of providing health insurance to their employees is rising each year. They are often forced to reduce benefits in order to maintain or control this expense. By offering an HDHP paired with an HSA, employers often find they are able to provide an excellent benefits program to their employees at a more reasonable price.
Understanding More About HSAs
Health insurance and HSAs can be confusing to employees. If an employer offers more than one insurance plan, employees may choose something more familiar, even if it’s more expensive, simply because they don’t understand how these plans work. Employee education is one of the best ways to combat this issue. Materials such as this infographic or this guide can help.
Similarly, employers may find the concept of instituting a new type of health insurance is more than they’d like to take on. A knowledgeable insurance broker can help make the transition from traditional insurance to an HSA-compatible plan and often can connect an employer with a third-party administrator to assist with rolling out the HSA. For employers who would like to learn more about the considerations associated with implementing an HSA, this HSA Key Decision Points guide outlines many of the major items to sort out.
The amount of money that can be contributed to an HSA is determined each year by the IRS. Additionally, minimum deductible and maximum out of pocket amounts are set by the IRS. To find out more about these limits for 2019, click here.
Deciding if an HSA is right for you as an individual or for your employees isn’t always quick and easy. However, the benefits of this type of arrangement often make it worth the time to learn about these plans and find out if they are the right fit for your needs!
All insurance policies are different. Be sure to review your insurance policy for specific information about coverages available to you. Nothing in this post is meant to suggest a guarantee of coverage.