Health Savings Account (HSAs) were created as a way to enable individuals to control their own health care costs by combining a tax-favored savings account with a High Deductible Health Insurance Plan (HDHP).
The combination of HSAs and HDHP shift more of the responsibility for managing health care costs to the insured. From an employer standpoint, this approach holds the possibility of lowering its health care costs.
How Does a Health Savings Account Work?
HSAs are structured similarly to Individual Retirement Accounts (IRAs) in that they are custodial accounts owned by the individual and contributions made to the account are tax deductible.
The 2015 contribution levels, which are indexed annually for inflation, are $3,350 per individual and $6,650 per family. Anyone who is participating in a HDHP that meets certain minimum deductible requirements is eligible to establish an HSA which becomes the source of health care expenses up until the insurance deductible is met.
Employees 55 and older can save an extra $1,000 as a catch up type contribution.
Contributions can be made by the employer (tax deductible) or by any individual on behalf of the insured. There is also a provision that allows for a one-time rollover of IRA funds into an HSA account.
The funds within the account are allowed to accumulate tax deferred, and roll over from one year to the next.
If an employee leaves an employer, the HSA is portable. Even if the individual doesn’t connect with another HDHP, the HSA may be used to pay for qualified medical expenses. Like IRAs, if funds are withdrawn for purposes other than medical expenses, they will be taxed and a 10% penalty may apply.
HSA as a Cost Effective Solution for Businesses
Businesses that are looking for ways to keep their health care costs in check can use Health Savings Accounts as a way to reduce costs while still providing health insurance benefits. With an HSA, the employees take more individual control over their health care costs, but since it works differently from a traditional health insurance plan with co-pays and networks, it will take some extra effort to educate employees on how to use it to maximum benefit.
Health Savings Account (HSA) plans usually result in the premiums that are lower than with traditional group health insurance plans, so employers will realize savings on premium outlays.
Since with the HDHP employees must meet a much higher deductible than usual, these plans tend to be favored by younger employees and those who usually have few medical expenses.
They can be more problematic for staff members with more treatment intensive conditions, so the composition of your workforce may make a difference in how happy – or not – your employees are with this option.
HSAs are growing in popularity so they are definitely worth considering as an option when choosing a group health insurance plan.