As the cost of healthcare and providing benefits to employees continues to rise, employers need to explore options beyond the traditional health insurance plan. Offering your employees an HSA, or health savings account, 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. 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 Contributions are transferred to a custodian, typically a bank, where they are held until withdrawn.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.
Employee contributions to an HSA are pre-tax. Employer contributions are not taxable to the employee either. Employees can use the funds in the account for qualified medical expenses at any time. For example, as they incur medical expenses years down the road, they will not be taxed. 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.
Health savings accounts are not only a tool that can be used by employees in the present, they can be held for future expenses as well. Amounts held in an HSA will earn interest on a tax-free basis and they may also be invested. 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.
Employers also benefit from HSAs.
The necessary high deductible health plan (HDHP) carries a lower premium, saving both the employer and the employees money. Because employee premiums and HSA contributions are made pre-tax, employers save on payroll taxes. Employer contributions to HSA accounts are tax deductible, meaning even more savings. Employers have the flexibility to decide the funding schedule, which can also make them budget-friendly.
We can help you determine if offering an HSA is right for your company. Request a free HSA quote to learn more and discuss your options with an MSIG benefits specialist.
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As an independent agency, we are here to help you find the right solution.