With heightened focus on talent attraction and retention, more employers large and small are turning to nontraditional benefits, including HSAs within consumer-directed health plans. That’s because one of the biggest challenges employees confront today is medical inflation. With the increase of health care costs year after year, there’s no question that it takes out a significant chunk of employees’ paychecks – in fact, annual health insurance premiums reached $18,142 in 2016 for an average family. For businesses, costs for health insurance premiums also continue to escalate.
So if you haven’t considered an HSA offering, consider the win-win proposition: it’s an attractive offering to help employees with rising health care costs, while serving as a tool for retention and reducing health care costs for your company.
HSAs at a glance
A health savings account (HSA) is a personal tax-favored savings account which must be paired with a high deductible health plan (HDHP) created for the purpose of paying qualified medical expenses. The HDHP has a higher annual deductible than typical health plans with a minimum annual deductible of $1,300 for individual coverage and $2,600 for family coverage. The IRS sets the standards for what qualifies as an eligible medical expense, but also be sure to reference employer plan descriptions for more information regarding eligible medical expenses.
Here’s what your employees need to know about eligibility requirements:
- You must be covered under an HDHP on the first day of the month.
- You cannot have any other health coverage.
- You cannot be enrolled in Medicare.
- You cannot be claimed as a dependent on someone else’s tax return.
Included with eligibility requirements are contribution limits. The IRS sets the contribution limits determining how much employees and employers can contribute to an HSA each year. The 2017 maximum contribution for an individual is set at $3,400 and $6,750 for a family.
The selling points for employees
Even while HSAs are becoming more common, many individuals are still discovering what they are and the benefits they glean. HSAs have been viewed traditionally as great for younger employees or those with few health conditions, however, this limiting box is no longer true. Here’s how this nontraditional benefit brings value to any employee:
It’s their money from the start. Employers may make tax-free contributions. And with HSAs, there’s no vesting schedule like with employer contribution programs for qualified retirement plans.
It’s portable and versatile. The money in their HSA will remain available even through changes to health insurance plans, employers or retirement. It’s there to cover future spending on qualified health care expenses or even serve as a retirement savings tool.
You don’t have to “use it or lose it.” If there is money left in the HSA at the end of the year, it will roll over to the next year without penalty, allowing the money to continue to accumulate or be spent on future qualified expenses.
You profit from a triple tax benefit. (1) Contributions to the HSA are 100 percent tax deductible from gross income. (2) Withdrawals to pay qualified medical expenses are tax free. (3) Earned accumulated interest is tax-deferred.
Other benefits come back to you
Life phases change, families grow, and eventually employees prepare for retirement. Offering a competitive health care plan as part of the benefits package that offers flexibility as needs change can go a long way toward attracting and retaining qualified employees, and helping your business become and remain an employer of choice.
Beyond that, employers stand to benefit from reduced costs and tax benefits. The contributions made to employees’ HSAs can be deducted from your federal income tax return. And as rising health care costs continue to push up employers’ insurance premiums, HSA programs through their higher-deductible plan offerings—are one way to keep those premiums down.
A projected upward trajectory
A repeal of the Affordable Care Act is looming, and depending on how the repeal and replacement details net out, HSAs seem destined to play an increasingly viable role for health care expenses in the future. Given the momentum, HSAs are expected to account for $54B in assets by 2018. Meanwhile, currently proposed replacement plans point to a greater number of American workers leveraging HSA accounts to pay for more health care expenses than being done under the existing system.
In a competitive landscape where acquisition and talent retention is a big challenge, and contending with mounting health care costs is another one, consider an HSA program—a benefit of real value to employees that brings with it equal value for employers’ bottom lines and appeal. And that makes for a win-win.
