As the cost of healthcare and providing benefits to employees continues to rise, employers need to explore options beyond traditional health insurance plans. Offering your employees a Health Savings Account (HSA) can be a cost-effective way to enhance your benefit plan while providing both immediate and long-term value.
What Is an HSA?
An HSA is an employee-owned savings account where money can be set aside on a pre-tax basis to be used to pay for qualified out-of-pocket medical expenses. These medical expenses include things like deductibles, copayments, coinsurance, and more. Like in an FSA, contributions can be made by both employees and employers.
Setting Up an HSA
Employers who wish to offer HSAs must have a Section 125 plan (also known as a cafeteria plan) in place. An employee must be enrolled in a high deductible health plan (HDHP) in order to make or receive contributions to the HSA. Contributions are transferred to a custodian, typically a bank, where they are held until withdrawn.
Employees Decide How and When to Use the Funds
Both employee and employer contributions to an HSA are pre-tax (aka not taxed). Employees can use the funds in the account for qualified medical expenses at any time, even years down the road, and still not be taxed on them. After age 65 or in the event of a disability, the funds can be used for any expense without a tax penalty, though these withdrawals would be subject to income tax.
Employees Can Save for Their Future
HSAs are not only a tool that can be used by employees in the present, but also in the future. Amounts held in an HSA will earn interest on a tax-free basis and they may also be invested. In addition to this, when an employee leaves their job, they are able to take their account with them, including employer-funded contributions, making HSAs an effective savings tool (other benefit accounts like FSAs and HRAs don’t allow this unless under certain circumstances).
Employers Also Benefit From HSAs
The need for an HDHP may seem like a drawback for HSAs, but in reality, it can be a benefit for employers. With an HDHP comes lower premiums, saving both employers and employees money on their monthly health plan payments. In addition to these savings, because employee premiums and HSA contributions are made pre-tax, employers save on payroll taxes. Finally, employer contributions to HSA accounts are tax deductible, and employers can decide the funding schedule, making them even more savings-effective.
We can help you determine if offering an HSA is right for your company. Request a free HSA quote below today to learn more and discuss your options with an MSIG employee benefits specialist!
Health Savings Accounts (HSAs) Quote
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