More than ever before, employers are putting their employees in greater control of their own health by offering high-deductible health plans (HDHPs). According to the National Center for Health Statistics (NCHS), 43.4% of people 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 can cause employers and their employees to hesitate from moving to these types of plans. HDHPs deductible amounts are at least $1,350 for individual or $2,700 for family coverage.
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.
An HSA lets employees contribute money to their account pre-tax and pay for eligible health care expenses from their account.
There are other advantages to HSAs, not only for employees, but for employers as well.
HSAs offer a number of benefits and advantages to employees. Below are just some of those advantages.
Current health expenses
An HSA is a savings tool that empowers the account holders (employees) to plan for future health care expenses. Employees’ contributions, withdrawals for eligible expenses and earnings are all tax-free. Plus, unspent HSA funds roll over year to year. As a result, employees can build funds to cover any eligible expenses they incur until reaching their deductible.
“Once a high deductible health plan member reaches the deductible, the services are covered by coinsurance or copayments,” said Rich Argentieri, vice president of sales at Independent Health. “However, virtually all high deductible health plans cover preventive services in full even if the member hasn’t met the deductible, so the HSA funds are used for all other services,” he said.
Another way to use HSAs is for long-term or retirement investment. Despite the term “savings” in its name, most HSA account holders view them as “health spending accounts,” and use the funds for current medical and health expenses. However, there is a growing recognition that HSAs can be used as a long-term savings account.
An HSA is a powerful tool that can come in handy now and in the future. A study by the Employee Benefits Research Institute found that the average couple needs about $265,000 in retirement for health care expenses alone.
“HSAs offer a combination of unique features when you can both spend and save money,” said Steve Neeleman, founder and vice chairman of HealthEquity, an administrator who delivers HSA, 401(k) and other consumer driven health and retirement solutions. “No other account like this can be used for today’s spending and long-term savings,” he said.
For example, HealthEquity enables employees to invest their HSA balances in different types of funds with variable levels of risk. In addition, the interest earned in the investment funds is also tax-free.
The employee fully owns all contributions to the account as soon as they are deposited. Account holders are responsible for making sure they use the account funds properly and have to provide supporting evidence on the use of their funds if requested under IRS audit.
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. In addition to minimal administration, some of the advantages are below.
Employers can save when their employees participate in HSAs because an employer’s contributions to their employees’ account are tax deductible. Employee contributions are also exempt from income tax, so their contributions won’t count against employers’ FICA taxes.
“HSAs have the benefit of purchasing power,” said Neeleman. “When you look at the taxes that employers save – for example state, federal and FICA taxes – for every dollar the employee receives in an HSA, compared to the health insurance benefit, it will give the employees 30 to 40 percent more purchasing power.”
Health Savings Accounts also encourage greater employee engagement in their benefits. “Employers want their employees to be more engaged and to think about their health better. Some employers offer higher contributions into their employees’ HSA for employees who complete certain wellness activities,” said Neeleman.
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.
Neeleman pointed out that employers of all sizes can offer HSAs in conjunction with HSA-qualified health plans and provide attractive benefits to prospective employees.
“When you combine the unique features of the HSA, it’s a unique instrument for employers to offer a more competitive benefit package,” he said.
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.
“We’ve seen many employers moving to higher deductible plans offer health savings accounts with them,” said Argentieri. “It makes sense for both the employer and their employees.”
For more information on Health Savings Accounts and other health account services, visit HealthEquity.
Independent Health offers Health Savings Account-qualified High Deductible Health Plans. To learn more about these products, visit Independent Health: