HSA Fundamentals for Employers

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June 27, 2018


Health Savings Accounts

What Is An HSA?

An HSA is a Health Savings Account which is a tool that allows employees to help pay their health insurance deductible and other qualifying medical expenses. HSAs are a great tool that helps small businesses offer their employee's healthcare benefits. HSAs will work alongside a host of various high-deductible insurance plans and oftentimes can be used for other healthcare expenses that may otherwise not qualify such as dental and vision costs.  

These are accounts that both the employees and the employer contribute to and it helps cover the employee's healthcare costs. Both employers and employees traditionally contribute to these HSA accounts. These accounts are only available to employees who have high deductible insurance plans with deductibles of at least $1300 per person or $2600 for a family. Employees can contribute a maximum of $3,400 per year with an additional $1,000 allowed if a person is aged 55 or older.

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Any funds that are withdrawn from the account that are not used for healthcare expenses will be charged the standard tax rate plus 20% if the person is under age 65.

What Are Some Reasons Companies Should Encourage Employees To Use Their Health Savings Account (HSA)?

Employers who offer Health Savings Accounts (HSAs) to their employees do so with the hope that their employees will take advantage of and utilize these accounts to help ensure that they have full healthcare coverage. While many employees will view a Health Savings Account as one more account to fund, the truth is that there are a lot of benefits to employees using and funding their HSA accounts including being allowed to claim the money contributed to the account as a tax deduction.

Moreover, the following are some of the key reasons employers should educate employees on as to why they should consider using their Healthcare Savings Account to help provide themselves and their family with quality healthcare plans:

  • using HSA accounts can help keep your monthly premiums for healthcare lower (for an individual or their whole family)
  • HSAs roll over year after year
  • contributions employees make are able to be deducted from taxes
  • when used for healthcare costs money taken from your HSA is not considered "income"
  • qualified costs include even dental and vision healthcare costs and deductibles
  • non-medical emergencies are reasons that some people will use this money although you will have to pay taxes and a fine to take the money out of your HSA for reasons other than healthcare-related expenses
  • plans are able to be moved even if the employee switches or changes jobs so they never lose their money

Many times, employees who contribute to their HSA on a regular basis end up saving even more than their counterparts on a traditional low-deductible plan. However, if employees are not using the plan to their benefit they have little to gain from a business offering an HSA account to help them cover their medical needs.

How Do HSA's Benefit Companies?

Many small businesses cannot afford the costly traditional "healthcare plans" that are offered to employees in today's business world. The cost to the company to even start the offerings of such a program are enormous. Using a higher-deductible plan that is offset by HSAs provide small businesses a way to be able to provide their employees with affordable healthcare in the days of the Affordable Care Act (passed in 2010) without being so costly that the company cannot afford to offer the healthcare now required by federal law.

HSAs benefit the employer by allowing them to offer their employees healthcare benefits that they otherwise not be able to afford with the costs of bringing a larger, mainstream healthcare plan into the workplace.

Encourage Use Of HSAs By Offering Employer Contributions:

After the benefits of the HSA accounts are explained to employees, the best way to encourage employees to get on board with HSA accounts is to offer employer contributions towards the cost of their healthcare. Much like a 401k or other benefits plan, the employer agrees to match a percentage up to a certain amount of money based on what the employee contributes to their account.

In essence, it's offering employees a "free money" incentive to utilize the HSA account that the company offers.

For example, an employer offers a 50% match of what the employee contributes up to 5% of their annual salary. That would mean that if an employee earns $50,000 a year and choose to contribute 5% of that, they are putting $2,500 into their HSA annually and the employer would be putting $1,250.00.

There is nothing more motivating to employees than to get additional perks from their employer by putting their own money away. That alone will motivate many people to take advantage of the HSA benefits your company offers and put their own money into the account to help offset otherwise higher healthcare deductibles.

Ask Your Employees For Advice:Finally, if your employees still don't seem interest in participating in their HSA account contributions, run an anonymous survey to find out what will get them to want to participate in their plans. Using a platform like SurveyMonkey.com can help you determine what motivation your employees need to participate in putting money into their HSA accounts and what you can do to help make the program more effective for everyone in your small business.

Keep in mind, however, that some employees may be getting healthcare other ways and not need to use the HSA at this time. Part-time employees for example, might still be in school and on their parent's benefits. Others might get healthcare from their parents till they are ineligible according to the Affordable Care Act (if they meet such requirements according to the new legislature) which means they can be on their parents' healthcare till age 26. .Some may have a disability that allows them to use Medicare or disability for more affordable health insurance. Finally, others may have spouses or other family members who are able to put them on their plans.

Conclusion:

Talking to your employees might be your best way to understand their needs and create and HSA plan that motivates them to contribute and make it all work out for everyone. This helps the company also avoid going out and buying expensive standardized healthcare plans that larger companies have that smaller ones may not be able to afford very easily.

For more information about how to get an HSA plan in place that your employees will actually invest in please feel free to contact us.

Sources:
https://www.healthcare.gov/glossary/health-savings-account-hsa/
https://www.optum.com/content/dam/optum/Employer/HSA_Guidebook_for%20_Employers.pdf
http://www.investmentnews.com/article/20150203/FREE/150209982/how-to-get-workers-to-chip-in-more-money-toward-hsas


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