As Benefits Managers know, a health savings account, also known as an HSA, is a smart option for individuals and families with high deductible health insurance plans. It is similar to a personal savings account, except that the money that employees deposit into the HSA is tax deductible, and in contrast to an FSA (flexible spending account), the funds roll over year after year.
As employee benefits shift to high-deductible models, HSAs are important in lessening the burden on individuals and families in paying for and preparing for healthcare expenses.
We thought it would be a good idea to review some of the key benefits of HSAs for employees here:
Setting Money Aside for Medical Expenses
Medical issues can crop up unexpectedly, and the associated costs can be difficult to cover without savings. With a health savings account, employees are able to set aside money exclusively for the purpose of covering health related costs.
One of the biggest barriers to employees selecting a high deductible plan is concern about covering the deductible if they need to use their health insurance for anything beyond routine care. An HSA gives employees peace of mind. It’s important to note that they must be a policyholder of a high deductible health insurance plan in order to qualify for a health savings account.
Control over Care
Employees have full control over the money in their HSA, and it rolls over year after year, so if they haven’t used the money for medical needs, it simply stays put. It can be used in future years or held until retirement.
Other options, such as health reimbursement accounts, or flexible spending accounts, require that employees use the funds in the account within the year, otherwise they risk losing that money.
Tax Benefits of an HSA
The tax benefits of health savings accounts are very attractive. Perhaps the greatest advantage is that the money deposited into the account is not taxed, and any interest that the funds accrue is also tax-free. This makes it much easier to set aside money for family medical expenses throughout the year.
Many employers also choose to make contributions to employee HSAs to make the combination of an HDHP and HSA more attractive. This money is also the employee’s to use and keep. The funds in the HSA remains as-is, even the employee starts a new job or stops working.
Money can be withdrawn from a health savings account whenever needed to cover medical costs without paying taxes. It can also be withdrawn for other purposes, but it will be taxed if used for non-medical reasons.
Health savings accounts are a wise choice for individuals and families who have high deductible healthcare plans, and a great way to ensure that employees are both receiving high quality medical care and have the resources to cover their medical costs.
Benefits Managers: we want to hear from you! What concerns do employees bring to you about HSAs and HDHPs? What questions do they have, and what have been the most successful ways to engage and educate them about these topics? Tweet us @ObeoHealth to join the conversation.
Photo credit: Balancing The Account