Introducing Health Savings Accounts
Health Savings Accounts (HSAs) are a type of tax-advantaged benefit option that you can provide to your employees to help them save money on health expenses.
Like other tax-advantaged accounts such as Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs), HSAs allow employees to put pre-tax contributions into their account to be spent tax-free on health care costs. Unlike FSAs and HRAs, though, HSAs allow those contributions to build up over time, rolling over from year to year and staying usable even into retirement.
HSAs are owned by the individual who has the account, not by the employer. Money they put into the account stays with them, even if they leave the company. They also have the option to invest their account funds to help it grow even more, also tax-free.
High Deductible Health Plans
HSAs work hand-in-hand with a special type of health plan known as a High Deductible Health Plan (HDHP). These plans are designed to encourage individuals to look more critically at their health expenses and consider how they can save money on their expenses.
HDHPs have, as the name implies, a high deductible before the plan will start to pay out for health expenses. These plans also must delineate a maximum out of pocket amount, at which point any expenses incurred beyond that amount will be paid entirely by the insurance plan. HSA-eligible plans must also not pay any portion of health expenses except for preventative services before the deductible is met.
Self only: $1,400
Self only: $7,000
*Not all plans with a high deductible are considered HSA-eligible. Always double-check with an insurance provider to ensure that the plan is HSA-eligible before offering HSAs to enrolled members. [footnote?]
HDHPs often come with lower monthly premium rates, which means that signing up could help people to save on their monthly bills as well as on their taxes by putting money into an HSA.
Why offer an HSA option?
Offering an HSA-eligible health plan is a great way to give your employees more options for their health care, and can even help you save money as a company.
Your employees will have access to an account that they own and that doesn’t expire. They can invest their funds and save for retirement or use their account to pay for immediate expenses. HSAs offer an alternative to the traditional health plan that helps them save money and be more conscious of their spending.
HSAs are also a great option for employers. HSA-eligible HDHPs often have lower costs to the employer as well as to the employee, helping you to save money month-to-month. HSAs also require less administrative oversight from the employer, as the accounts are owned by the individual, so there is less risk to you as a company. HSAs are also not prefunded, so individuals can only spend up to what they have already contributed instead of borrowing against a future contribution.
How do I know if I have a High Deductible Health Plan?
If your current insurance plan has a higher deductible than a traditional insurance plan, you probably have an High Deductible Health Plan (HDHP). The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share (your deductible). A HDHP can be combined with a health savings account (HSA), allowing you to pay for certain medical expenses with money free from federal taxes.
For 2020, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,900 for an individual or $13,800 for a family. (This limit doesn't apply to out-of-network services.)
What is the maximum contribution that can be made to an HSA?
To learn more about the latest information regarding contribution limits, go here.
Ready to find out about an HSA for your employees?
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