Health savings accounts can offer tremendous benefits for a company and its employees.
At a time when everyday costs are on the rise and competition among employers is stronger than ever, the right employee benefits can make a world of difference. Health savings accounts (HSAs) are popular options due to the significant benefits they offer to employer and employee alike.
Here, our employee benefits professionals dive into what companies of all types, sizes and industries should know about incorporating health savings accounts into their offerings. From what these accounts are to the differences they make and points to consider when selecting one’s best option, it’s information that matters, when it matters.
What is a Health Savings Account?
The health savings account is an approach to savings meant to help employees pay for qualifying medical expenses while also enjoying tax benefits. Employees who opt into a health savings account agree to have a certain amount of money set aside from each paycheck and deposited directly into their account. Contributed funds can then be used for medical expenses ranging from doctor office copays to prescription medications and approved over-the-counter items. A few key features make the health savings account a popular option in the world of employee benefits:
- Triple Tax Advantage: Health savings account contributions are tax-deductible, meaning an employee’s contributions reduce their taxable income. In addition, their growth is tax-free and withdrawals related to qualifying medical expenses are not taxed.
- Flexible Funds: Employees can roll unused funds from one year to the next, allowing them to save up for anticipated medical expenses or even retirement.
- Employee-Owned: A health savings account is linked to the person, not their workplace. As such, they maintain access to those funds even in the event of a job switch or retirement.
HSA Benefits for Employees
The HSA is designed to place added power in an employee’s hands regarding how and where to allocate their medical spending, while also helping to keep costs in check. These accounts encourage individuals to keep up with routine medical care while also making it more manageable. This can be especially critical during times of inflation, when rising costs lead to financial strain. Let’s take a closer look at some of the advantages an HSA offers workers.
- Long-Term Savings: Unlike flexible spending accounts (FSAs), which must be spent within a certain timeframe, unspent HSA dollars remain with a worker from one year to the next. This can be a great option for employees saving up for a future medical procedure or surgery, or those simply hoping to remain prepared for the unexpected. As we’ve mentioned, HSA savings can remain with a person even into retirement.
- Tax Savings: One of the most attractive features of an HSA is the aforementioned triple tax advantage. Employees have the ability to lessen their taxable income by contributing pre-tax dollars, enjoy tax-free growth and also use the funds for qualified medical expenses without paying taxes.
- Improved Control: Added power over how and when to allocate HSA funds can benefit employees on multiple levels. Not only do they maintain better control over their bookkeeping and overall finances, but they often feel more confident — better able to take the reins on health care decisions.
- Retirement Planning Support: Employees who are 65 or older can apply HSA funds to non-medical expenses without facing a penalty. (It’s important to note, however, that traditional income taxes will come into play where applicable.) These flexible plans can play an important role in helping individuals manage expenses after retirement or save up to ensure they are financially prepared once retirement comes.
The Benefits HSAs Offer Employers
Although HSAs are largely seen as a boon to a company’s team members, there are significant advantages on the business side of things, too. Here, our employee benefits professionals offer a closer look.
- Cost Savings for Employer & Employee: Pairing an HSA with a high-deductible health plan (HDHP) can help a business lower its health insurance premiums — an attractive benefit at a time when many health plans are on the rise. In addition, employers have the option of contributing to worker HSAs. Doing so provides a tangible benefit to team members while still helping to keep health care costs in check.
- Tools to Attract & Retain Top Talent: A quality employee benefits package goes a long way toward helping a company stand out from the competition, and offering an HSA is a great option. The flexibility and savings potential HSAs provide signals to current and potential workers that a company values them and wants what’s best.
- Employer Tax Savings: Tax-deductible contributions made to employee HSAs can result in tremendous savings over time. In addition, a company can see lower payroll taxes when workers use pre-tax payroll deductions to build their HSAs.
- Improved Employee Wellness: Providing employees with the tools they need to evaluate and better manage health care costs makes them more likely to embrace healthier lifestyles. And a healthier workforce is absent less often — while also being more productive.
Determining the Best HSA Plan for Your Business and Employees
As anyone who has ever been tasked with employee benefits plan selection can tell you, there are countless options available. (And the sheer volume can be overwhelming.) We recommend working closely with your BCH benefits professional to determine the right HSA plan for your company’s people and needs. Here are some factors to consider.
- Pair Your HSA Plan with a Quality HDHP: Remember, your HSA plan must coincide with a high-deductible health plan. It’s in team members’ best interest to find an approach that marries comprehensive coverage with affordability. Seek out HDHP plans that offer team members extensive options related to health care providers while also maintaining reasonable out-of-pocket spending limits.
- Assess the Ease of Administration: Look for an HSA plan that simplifies life for all involved. For instance, user-friendly platforms that allow employees to review available benefits, manage accounts and make necessary payments put added control in employees’ hands while (ideally) lowering the number of questions and concerns an HR team must field. HSA debit cards and mobile app capabilities offer similar benefits.
- Consider Employer Contributions: An employer’s offer to match or contribute to employee HSAs can significantly enhance the value of the benefit and encourage team members to take part. Even small contributions can have a substantial impact.
- Evaluate Applicable Fees & Compliance: Your chosen HSA plan should comply with applicable IRS regulations while also being transparent regarding fees. Hidden administrative fees, for instance, can prove an unwelcome surprise to employees while lowering the benefit’s overall value.
Health savings accounts have the potential to be a powerful tool for employers and employees alike. The key comes in selecting the proper plan for your company and team members — and ensuring those team members understand how to make the most of the available benefits. Our Health Savings Accounts Quick Sheet offers a helpful overview of the “how” and “why” of the HSA plan, and how it compares to other options out there. Of course, no info sheet compares to the benefits of talking with a real person.
If you have questions about any of the above, or if you’re interested in learning more about making health savings accounts available to your team members, feel free to reach out to BCH’s employee benefits pros. We’re always glad to hear from you, and we’re happy to help.