HSAs aren’t new to the market, in fact, they have been around since 2003. They are likely a new option in your health benefits offerings. To help employees understand an HSA we not only need to break down their value but the different strategies to get the most from an HSA.
What is an HSA?
Think of an HSA as a 401k for healthcare. You can use it to pay for qualified out-of-pocket medical expenses today or save it (just like a 401k) for years to come. It has triple tax advantages (tax-free contributions, growth, and distributions). It is a health account that has immediate and long-term value. It is like two benefits rolled into one!
How Much Can Employees Contribute Annually?
2018 HSA contributions are $3,500 for individuals and $7,000 for families. Individuals over 55 years of age can add an additional $1,000/year.
What Employees are Eligible for an HSA?
This might be the most complicated aspect of an HSA. Here are the qualifiers for HSA-eligible health plans:
- HSA-eligible plans that qualify must have minimum deductibles of $1,350 for individuals and $2,700 for families and all costs up to the deductible must be paid by the individual (i.e., no copays or coinsurance).
- Qualifying plans must have maximum out-of-pocket amounts of less than $6,750 for individuals and $13,300 for families.
We have a handy chart here if you have any more questions.
One more thing – if an employer already has an HSA, but switches to a non-HSA eligible plan, they can still use their HSA, they just can’t make new contributions. The HSA is a lifetime benefit. Once an employee contributes, the money is always there to use for qualified out-of-pocket medical expenses.
How to Make the Most of an HSA and an HDHP?
HSA-eligible health plans, like HDHPs are great for employees looking to save money on higher monthly health premiums. Coupling an HSA with an HDHP balances those higher out-of-pocket costs with pre-tax HSA savings. The result is the only way to create long-term health savings. Health plans like PPOs and HMOs expire each year, adding an HSA means you can have money dedicated to health cost well into retirement.
Which Employees Should Use an HSA?
The best part of an HSA is that its tax benefits create value for employees of all ages including those with low or high expected health costs.
- Younger employers, with lower expected out-of-pocket health costs, can save and invest their HSA for the future. These savings will be there when they need it later in life. If they don’t need it, after the age of 65, they can use it just like a 401k or IRA, for anything, not just out-of-pocket medical expenses.
- Older employers, with higher expected out-of-pocket health costs, can take advantage of the tax-free contributions to save 25% of the retail costs of healthcare (25% assumes blended federal and state income taxes of 25% or more).
The biggest problem facing HSA adoption might be the laundry list of benefits and nuanced ways employees can make an HSA work as part of their health and savings benefits. Save and spend today or Invest in your health®.
Don’t wait until next open enrollment to add an HSA to your HR offering, you can do it anytime!
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.