Health Savings Accounts
What are Health Savings Accounts (HSAs)?
The cost of health care will continue to outpace inflation and wage growth by wide margins. Health Savings Accounts (HSAs) are a new tax-eligible vehicle that can help businesses and employees control those costs and obtain important tax advantages.
Based on US Treasury Department’s guidelines, an HSA is a private savings account paired with a high-deductible health plan (HDHP). The HDHP must have a minimum annual deductible of $1,050 for individuals and $2,100 for families. Participants fund the HSA tax free with any amount up to the amount of the annual deductible. They use the HSA funds to pay for qualified medical expenses (QMEs) until the annual deductible is met.
HSAs funds—
- Pay for Qualified Medical Expense (QMEs) based on IRS Guidelines, including some expenses not covered by health plans
- Are owned by the employee, not the employer
- Are fully portable and go with the employee upon termination of employment
- Bear interest and accumulate year to year tax free, and distributions are also tax free
- Roll over year to year if not used (no “use it or lose it” rule)
- Are more favorable to employees than other tax-eligible vehicles, such as Health Reimbursement Accounts and Flexible Spending Accounts
Why should your business consider Health Savings Accounts (HSAs)?
More than salary, health benefits are the key to attracting—and retaining—good employees. Coupled with a High-Deductible Health Plan (HDHP), HSAs can help—
- Lower premiums substantially while keeping excellent health coverage with "safe harbor" benefits
- Control ongoing premium costs
- Reduce enrollees’ taxable income and, correspondingly, the business's payroll tax liability
- Offer enrollees a tax-deferred retirement savings vehicle
- Deduct that portion of the business’s contributions to an employee’s HSA