Have you been trying to decide how best to offer cost-effective health insurance to your employees? Here’s a vote for the combination of a High Deductible Health Plan (HDHP) and a fully-funded Health Savings Account (HSA). Read on to find out how this can work for you.
Back in 2013, 20% of group-sponsored health insurance plans were HDHPs, and they’re becoming even more popular now, when paired with an HSA. Why? Tax advantages galore.
HDHPs provide a way for employers to cut employee benefit costs because they have lower premiums. But on their own, HDHPs force employees to cover a greater amount of the cost of health care by requiring a higher deductible and a greater level of out-of-pocket expenses. That’s a recipe for resentment.
However, if you provide an HSA plan along with the HDHP, everyone wins because everyone saves money.
- How the Business Saves: When you set up an HSA, you enroll your employees and deposit a percentage of their paycheck every payday into their individual HSA accounts. That money is not subject to federal income tax or any other payroll taxes, such as Social Security or FICA, Medicare, or unemployment. It’s also tax-deductible on your business’ tax return for the year.
- How the Employees Save: That money goes to the employee and stays with the employee, no matter what. If an employee has an unused balance, it goes with that employee if he or she leaves the company to work elsewhere or retires. Any money added to the HSA each year may be invested for future growth and income—tax-free. Again, growth from income and investment appreciation is not subject to federal income taxes.
It gets better. If the HSA funds are withdrawn for qualified medical expenses by the account owner, a spouse and/or dependents, such withdrawals are not subject to federal income tax—IF the account is set up correctly.
An HSA is helpful in the short term because it helps employees save money on out-of-pocket medical expenses like doctor visits, vision and dental care, and prescriptions. It’s great in the long run because it gives them a way to save money and make interest, all tax-free. If you can ensure that your employees understand how an HSA works, you’ll gain buy-in and loyalty. And with less employee turnover and lower health care costs for you along with greater economic stability and better health for your employees, a HSA truly creates a win-win situation.
Have questions about the Affordable Care Act, payroll or other HR related business challenges? We can help. Call Complete Payroll today!