When you think of employee benefits, what are the first things that come to mind? You’re likely thinking of a list of the usual suspects: health insurance, dental coverage, 401K, paid leave, working from home, etc. But did you know there are tons of others options that make sense for your employee population? For example, did you know that Health Savings Accounts (HSA) are one of the most sought after benefits?
Today we’ll tackle the in’s and out’s of this hidden benefits gem.
What Is A Health Savings Account (HSA)?
Very simply, an HSA is a bank account where you can pay for qualified expenses, such as medical, dental, vision or other eligible health services on a pre-tax basis. Money put into an HSA may only be used for eligible services, but goes in untaxed and unlike many other “tax-free” type accounts it’s not taxed when the money comes out. These accounts work almost like your regular checking account, where they have a debit card but for those of you who are old school (and that’s ok if you are) you can also get paper checks to pay for services.
Given the cost of healthcare, you can see how valuable and attractive an HSA can be – allowing users to save for a rainy day while deducting dollars from their taxable income. The really nice thing about an HSA, the money that goes into the account is YOURS. It doesn’t matter who put it there – you, your employer, your cousin Johnny, etc. – once the money is deposited into that account, it’s yours to use next week or ten years from now. There is no ‘use it or lose it’ provision like you have with FSA’s.
What Are HSA Eligibility Qualifications?
There is one major provision and requirement that must be met in order to open and contribute to an Health Savings Account, the banking piece we just discussed. In order to open an HSA, you have to be enrolled in an HSA-eligible health plan, that’s the insurance piece to the puzzle. The biggest difference between HSA-eligible and non-eligible health insurance plans is the absence of copays.
With the exception of preventive care being covered at 100%, everything else you do on this type of policy goes toward the deductible first, then the insurance will kick in once the deductible has been met. That’s exactly why the IRS allows you to open the HSA with all their nice, juicy pre-tax benefits. You are on the hook for all the costs of your coverage, so they created a vehicle (the HSA) that allows you to pay for at least a good portion, if not all, of your out of pocket costs with pre-tax dollars.
If you’re getting an employee-sponsored program or individual program, it should be pretty obvious which plans are HSA-eligible. Just remember, with the HSA you’re paying directly from your HSA account for the full cost of the service or visit, which is put towards your deductible. Once your deductible is met, the insurance kicks in for future services. This absence of copays is a big part of what makes you eligible open an HSA.
HSA-eligible insurance programs tend to be less expensive than traditional plans that have copays in the pharmacy and for the doctor’s office so this can be a winning, one-two punch. First, you have a lower insurance premium because you’re on a plan that has less bells and whistles. Second, you have the HSA where you are putting money to cover your health costs when you need it AND that money is going to go un-taxed when you file your individual tax return.
The HSA Advantage
Again, one of the biggest advantages to owning an HSA is the tax break. If you’re tax conscious and want to sock some dollars away free from the IRS that you may use now or two years down the way, the HSA is a perfect solution and be a very attractive perk to potential new hires. The other major benefit to an HSA is the fact that because there is an absence of copays, the premiums for these policies tend to be lower. Perhaps your group is young and healthy and doesn’t use a lot of insurance, HSA’s can offer lower premiums and lower overall costs your company.
These programs aren’t a perfect fit for everyone, but for the employee who has a dependent who has a surgery scheduled, the employee who has zero utilization and just wants a low cost option in case something major happens or that executive level employee you have who is looking for every possible tax write-off, adding an HSA eligible plan alongside the option to open and contribute to, an HSA can be a wonderful addition to your benefits program.
Want to make the entire scenario even more enticing for your employees? Consider making contributions from your company into the employee’s HSA to sweeten the deal. If your company is saving big bucks because employees are going into a lower cost HSA eligible plan, consider taking a percentage of that savings and gifting it back to the employees who go with the HSA eligible plan. They’ll appreciate it.
Health Savings Accounts Contribution Limits
Since we’re talking about tax free benefits, you know the IRS is going to be involved, right? Of course they are. They actually set the rules. Annually, the IRS sets the limits on HSA plans, contributions limits. For 2017, the contribution limit was $3400 for an individual or $6750 for a family. For 2018, those numbers are increasing to $3450 and $6900 respectively. If you are 55 or older, you can also make an additional contribution of $1000 per year, this is known as a catch-up contribution. Please keep in mind, if you are a generous employer and you are putting money into your employee’s HSA’s, the contribution limits apply to all dollars deposited, so if you are giving an employee $1000 in their HSA for 2018, the employee could only contribute an additional $2450.
We hope this information is helpful and for those of you who aren’t familiar with Health Savings Accounts (HSA’s) and gets your wheels turning a little bit. We’re happy to answer any questions that anyone may have!
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About Holloway Benefit Concepts
HBC was founded in early 2011 by Ryan Holloway. After serving over 8 years on active duty in the US Marine Corps, Ryan transitioned from being a full-time marine into an HR professional in early 2003. This began a journey and awoke a passion for helping companies who value their employees. After spending time working with a COBRA and FSA Administrator, an insurance company, and a large brokerage, Ryan realized that there were more unique and creative solutions for businesses than other companies were willing or able to realize. Seizing on his own entrepreneurial spirit, Ryan set out to found an independent agency designed to provide unique and original insurance solutions. To learn more about HBC, visit https://hollowaybenefitconcepts.com/