Health Savings Accounts: Good for Employers and their Employees
The trend of employers offering high-deductible health plans (HDHPs) continues. According to the National Center for Health Statistics (NCHS), 43.4% of persons under age 65 with private health insurance were enrolled in an HDHP in 2017 – an increase of 18.4% from 2010.
These plans offer lower premiums because employees take on more of the upfront cost of medical care. But, the amount of the up-front deductibles - at least $1,350 for individual or $2,700 for family coverage - can be a concern for both employers and their employees.
Fortunately, an HDHP that meets certain criteria may be paired with a Health Savings Account (HSA) to help employees cover the cost of the deductibles. These types of plans are known as HSA-qualified HDHP plans, and can be offered by employers of all sizes.
There are advantages to HSAs, not only for employees, but for employers as well. Below are just some of those advantages.
Employee Advantages
- Funds current health expenses: Employees’ HSA contributions, withdrawals for eligible expenses and earnings are all tax-free. Plus, unspent HSA funds roll over year to year, so employees can grow their funds to cover any eligible expenses.
- Long-term Savings: HSA account holders are able to invest their HSA balances in different types of funds with variable levels of risk, and save their funds for health care needs in the future, including retirement. In addition, the interest earned in the investment funds is also tax-free.
- Ownership: The employee fully owns all contributions to the account as soon as they are deposited.
Employer Advantages
- Ease of administration: HSAs free up the employer from the burden of administration that may exist with other types of employee tax-advantaged accounts, such as FSAs and HRAs.
- Tax Savings: Employers are able to contribute to their employees’ HSAs, and those contributions are tax deductible. In addition, employees’ contributions won’t count against employers’ FICA taxes.
- Enhancement to Employee Benefits: While employers do not have to make any contributions to their employees’ HSAs, many employers find that making a contribution helps to improve HDHP adoption rate and boost participation in HSAs, especially if they are transitioning from a more traditional type of health coverage.
With enrollment growth in HSA-qualified plans expected to continue in the coming years, HSAs represent a vital option to provide Americans with greater control and choice over their health and financial security, leading to greater peace of mind.
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