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Health Savings Accounts
Offer A Unique Approach

Health savings accounts (HSAs) have emerged to give individuals and employees more choice and control over their health care. These accounts, paired with high-deductible health plans (HDHPs), help employers cope with rising health care premiums by changing consumer behavior and creating a culture of responsible health consumers. 

Saving Costs, Adding Value to Self-Funded Employee Health Benefit Plans

HSAs are tax-free accounts where money is deposited either by an individual, an employer or both and withdrawn at any time to pay for qualified medical expenses. Unlike FSAs, HSAs allow individuals or employees to carry over unused funds from one year to the next, and to keep the account if they retire or change employers. HSAs must be paired with a qualifying high-deductible health plan (HDHP), which among other requirements, carries a minimum deductible of $1,000 for individuals and $2,000 for families.

Encouraging better consumer behavior

Because an HSA is paired with an HDHP, the insured is encouraged to consider costs when making health care decisions. HSAs are owned by the insured, and they can determine to receive reimbursement from their account for health care expenses as they incur or save the funds to pay for future expenses. Because these high-deductible plans put more responsibility on the insured, employers are often encouraged to offer educational tools like nurse lines, online health libraries, newsletters and online hospital quality information to assist with the health care decision-making process.

The benefits of HSAs

For employees, HSAs are tax-free. Contributions may be deducted from their paycheck pre-tax, or individuals purchasing HSAs may claim their contributions on their tax return as an above-the-line deduction. Interest on HSA funds is also tax-free, along with any distributions received from the account if used for eligible medical expenses. Unused money in the account rolls over to the succeeding year and can be saved for retirement or future health care expenses. 

These accounts are completely portable; this means the account stays with the individual when he or she leaves the employer or retires. HSA funds can be used to pay COBRA continuation coverage, and can also be invested as permitted under IRA guidelines. 

Employers offering HSAs also receive a considerable tax advantage. An employee making pre-tax contributions to an HSA lowers the amount of taxable payroll, and an employer’s contributions to an employee’s HSA are exempt from FICA and FUTA taxes. 

Because HSAs are owned by the insured and are portable, if employers wish to contribute to an HSA they may want to consider offering a health reimbursement arrangement (HRA) as an alternative. Unlike HSAs, employers do not have to pre-fund HRAs and can exert some control over how the funds are spent. Employers also can control whether or not the insured can take the funds with them if they leave the company.

Educating employees about HSAs

The key to successful HSA enrollment in a group setting is consumer education. By countering potential objections with facts, employers will receive greater plan participation. One common misconception is that HSAs are only for wealthy individuals, but HSAs can be well suited for lower/middle class households. Particularly if individuals are in good health, a high-deductible plan will often cost them less than their current plan and the money they save can then be contributed to an HSA. If they incur unexpected expenses, they can use the tax-free funds to pay for all or part of them; if not, the funds can remain in the account, accumulating interest tax-free. Keep in mind that HSAs are not for everyone. By offering a qualifying high-deductible health plan along with other plan designs, an employer allows employees to choose the plan that best meets their needs and financial situation.

Some employees, accustomed to receiving extensive benefits at a low cost from their employer, shy away from High Deductible Health Plans. The challenge is to convey to employees that, due to escalating premiums, their employer is no longer in a position to offer the same level of benefits, year after year. With HSAs, employers can educate their employees on the true cost of health care, while still providing quality, trusted benefits. 

The role of the brokers today is to assist their clients in finding their own customized solutions to the escalating costs of health insurance. HSAs are another alternative that a broker can offer as a tool to control rising health care premiums.

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Monday, October 21, 2013 09:58 AM

 

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