Healthcare Costs Continue to Rise–How A Health Savings Account (HSA) Can Work to Everyone’s Advantage

Health Savings Account (HSA)Since the 2016 presidential election, many topics continue to be examined and debated. No matter what side of the fence you are on, almost everyone agrees that healthcare costs are “challenging” or even “out of control.” In fact, healthcare costs are expected to continue to grow in 2017, well outpacing inflation.

So how, as employers and employees, are we to manage these rising healthcare costs? While there are multiple strategies to consider, we will limit our focus for this article to the implementation of a Health Savings Account or HSA.

Employers and employees alike have realized significant cost savings from pairing an HSA-eligible health insurance plan with a tax-advantaged HSA. An HSA eligible plan typically is a higher deductible plan but with lower premiums than traditional HMO-PPO-type health plans. Both employers and employees can save money on insurance premiums with lower-cost HSA-eligible plans and can contribute all or a portion of the cost savings of moving to a higher deductible health insurance plan to the employees’ HSA. The balances in the HSA can then be used at the discretion of the employee to pay for current or future qualified healthcare expenses, while the balance in the account has the potential to appreciate free from federal income tax. In a nutshell, HSA’s give employees more control over their health care dollars and encourage responsible consumerism in the healthcare market-place.

With HSA-eligible health care programs, employers:

  • Improve attraction and retention of good employees by offering competitive healthcare plans as well as an individual benefit—the HSA—that employees can take with them.
  • May be able to afford to offer health insurance benefits if they have not before, helping previously uninsured employees protect themselves from the staggering costs of severe injury or illness.
  • May save on their portion of health insurance premiums.
  • May be able to deduct their contributions to employees’ HSA’s on their federal corporate income tax return for the year the contributions were made.

Note: When considering an HSA program for your employees, look for a provider that offers tools and calculators to help employees understand the benefits of the program and be sure that the HSA can be easily converted to an individual HSA should your employee leave, change plans or retire.

With HSA’s employees benefit by:

  • Tax-free withdrawals to cover qualified health care expenses.
  • Potential for tax-free earnings on their HSA accounts.
  • Pre-tax payroll contributions to their HSA.
  • Tax-advantaged savings for medical needs down the road
  • No ‘use it or lose it’ penalty, like flexible spending accounts have and can continue to appreciate tax-free on their HSA funds year after year.

The bottom line? Unpredictable, rising healthcare costs are propelling employers and employees to partner to find cost-effective solutions. An HSA can be a great choice for people who want to limit their upfront healthcare costs while saving—tax free—for future expenses. Is an HSA-based strategy right for everyone? Probably not—but by comparing options and looking closely at the cost elements, an HSA can potentially help both employers and employees stretch their health care budgets by combining tax benefits on savings with lower premiums on insurance coverage. And best of all, HSA’s offer employees some empowerment and a sense of control…and an opportunity to grow their health care savings over time—an important benefit that can help ensure a business’s ability to attract and retain top-notch talent.

Sources:

Toolson, Richard: The Tax Magazine, The Health Savings Account as a Smart Savings Option for Retirement: Dec. 16, 2014

Folger, Jean: Pros & Cons of a Health Savings Account [Investopedia], Sept. 8, 2014

[Unattributed]: Health Savings Accounts Are A Win-Win for Employers and Employees [Bank of America Health Accounts]

Hixon, Todd (Forbes contributor): 5 Ways to Manage the Rising Costs of Benefits: [Forbes How Small Businesses Can Survive the Rising Tide of Health]