Saving money on health care has become a priority for both employers and employees. It was reported by Kaiser that in “2012 the annual family premium was 30% higher than in 2007 and 97% higher than the average annual family premium 10 years ago.” As the year comes to a close, many business owners reevaluate their options for health care coverage and look for ways to improve their cash flow. Both employers and employees save money on health care coverage by offering a Health Savings Account (HSA) paired with a high deductible health care plan. Here’s how:
Employers Save Money
Employers save money when they offer a high deductible health care plan paired with a Health Savings Account in a few ways. First, you substantially reduce your insurance premiums. Second, you can contribute a portion of that premium savings to your employees’ Health Savings Accounts, with pre-tax dollars, which lowers your taxable income. Third, you reduce payroll taxes when your employees fund their HSAs with pre-tax dollars, which is a savings for them. The savings add up! In addition to the premium and tax savings, employers like HSAs because the management of this account falls on the employee. HSA reimbursements do not require claims substantiation and is one less hassle for you while you manage other benefits provided to your employees.
Employees Save Money
HSAs help your employees save money by allowing them to contribute pre-tax income for current and future healthcare expenses. A unique benefit of an HSA is their triple-tax advantage:
1. Employees can contribute pre-tax funds to their HSA, which lowers their taxable income.
2. They can withdraw funds tax-free for eligible medical expenses.
3. They earn tax-free interest.
An HSA is a tax-favored account in which funds are specifically used to pay for qualified medical expenses as determined by the IRS (not by the employer or the HSA custodian). Employees can use HSA funds to pay for qualified medical expenses while meeting the annual deductible, and pay for medical services and products that the medical plan may not cover. Employees like HSAs because they fully own the account; not the employer. They can fund their HSA on a pre-tax basis such as through payroll deduction. Once funds are deposited and the HSA is open, those funds are the employees to keep – even if they terminate employment. If HSA dollars are not used, the amount rolls over year to year earning interest tax-free or potentially growing when invested in “at risk” self-directed investment options including stocks, bond and mutual funds tax-free. If an employee needs to use HSA dollars for eligible medical expenses, money can be transferred from an investment account to the HSA or withdrawn from money already in the HSA on a tax-free basis.
Learn why more businesses are offering a high deductible health care plan coupled with an HSA more than ever before and how it can improve your cash flow. Contact your Webster banker for information, or click here to read more about HSAs for employers, or click here to watch a video on how HSAs work. Let us know any questions about health savings accounts in the comments below.