Jane has a tough decision to make. She interviewed for two positions and was offered both jobs. She’s excited about both companies. Being a savvy consumer, she’s looking at the overall benefits packages. She knows it’s about more than just the salary these days. Each company is offering a health insurance plan, commuter benefits, a 401(k) and other perks. She accepts the job with the High Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA). After some calculations, she realizes this plan will serve her needs the best.
Jane is like many employees today. They examine the intricate details, research, and make decisions based on what will work best for them. HDHPs paired with HSAs make sense for many.
Employees need health insurance
Employees have always sought health insurance, and in today’s world, it’s an essential benefit for most of us.
On the flipside, health insurance is an expensive benefit for employers to offer. This is where High Deductible Health Plans (HDHPs) come in. An HDHP is a health plan that typically has lower monthly premiums, but high deductibles. These plans are becoming increasingly popular, with an estimated 21.8 million enrollees in 2017. The number is expected to increase.
Though a high deductible health plan seems daunting, lower monthly premiums help employee budgets by freeing up cash for other expenses. HDHPs offer an advantage traditional health plans do not, the ability to be paired with a Health Savings Account (HSA).
An HSA is a tax-advantaged account that can be used to pay for qualified medical expenses. Employees can use the funds to pay for items and services such as doctor office visits, eye exams, prescriptions, eyeglasses, contact lenses, chiropractic treatments, and much more. The list of qualified expenses is extensive.
HSAs benefit employers and employees
HSAs provide tax benefits for both employers and employees. Employer benefits include:
- Lower insurance premiums – when you move to an HDHP with an HSA, your company will save on health insurance premiums, without sacrificing employee coverage.
- FICA savings – Employees HSA contributions are not considered wages, so neither you nor your employees have to pay FICA taxes on that money.
- Employee retention – Lack of benefits is a major reason people leave jobs. Health insurance is one of the most significant line items in many people’s budgets. Having a reliable way to help pay for healthcare is vital. HDHPs with HSAs allow your employees to have health insurance, save money, and invest for the future.
In addition to the employer benefits you’ll see, your employees will enjoy several perks with their HSA, including:
- Lower monthly premiums – Employees can save a lot of money by not paying high monthly premiums for coverage they may not use.
- Change contribution levels – Employees can change their HSA contribution levels as often as you (the employer) will allow.
- Funds roll over – Since HSAs are not a “use-it-or-lose-it” plan, employees don’t have to spend the funds each year.
- Save for retirement healthcare costs, tax-free – Employees can invest HSA funds and let their money grow to cover medical expenses in retirement.
HSAs provide an added retirement benefit
HSAs are an excellent way for employees to save for today’s healthcare expenses while building a nest egg for their golden years.
HSAs have no “use-it-or-lose-it” rule. Employees can use it as a retirement account. If they don’t use the money they contribute to their HSA each year, they can leave it in the account and watch it grow.
HSA contributions reduce their taxable income for the year. When HSA money is used to pay for qualified medical expenses, they won’t owe tax.
There is no time limit on using HSA funds to reimburse medical expenses incurred when an HSA is up and running. For example, they may decide to reimburse themselves 30 years later with tax-free dollars. As long as they have documentation proving the withdrawal was for a qualified medical expense, they can use the money years later.
Between the monthly premium savings, investment options, and tax advantages, HDHPs paired with HSAs let employers offer health insurance that both parties benefit from. Happy employees help your company run smoothly, which is a win-win for all.
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.