Health Savings Account (HSA)
A Health Savings Account (HSA) allows employees enrolled in a high deductible health plan (HDHP) to save and invest pre-tax dollars to use on qualifying medical expenses.
What is a health savings account (HSA)?
An HSA is a savings account that employees can use to pay for medical expenses like doctors' appointments, prescriptions, and over-the-counter medications.
Here’s how it works: with an HSA, employees have the option to make tax-free contributions from their paycheck. Once they hit a certain balance threshold, they can choose to invest the funds. It’s kind of like a 401(k), but for healthcare.
If you want to take an extra step to invest in your employees’ health, your employer can opt to make contributions to employees' accounts. That support is pretty common; in January 2021, 34% of HSAs received an employer contribution, with an average contribution of $502.
And how does a triple tax advantage sound? All HSA contributions are made pre-tax, plus account holders don't pay taxes on the account's growth or any withdrawals.
It's important to note, though, that HSAs are only available to those who are enrolled in a High-Deductible Health Plan (HDHP).
How are health savings accounts (HSAs) used?
Most HSAs offer a card for easy payments on the go, kind of like a debit card. These cards can be swiped to cover a range of health-related expenses.
Sure, they can be used for your basic medical costs like co-pays and prescriptions. But that’s just scratching the surface of just how many expenses these accounts can cover.
For example, when your communications associate goes in for her annual eye exam at the optometrist, she can use her HSA card to cover her co-pay. She can also use it for her new pair of glasses (or even a matching pair of prescription sunglasses!) And get this — if she had to pay for parking at that doctor’s appointment, she can even be reimbursed for that fee using pre-tax dollars from her HSA account.
Folks can also use their HSA to pay for over-the-counter health-related purchases. Say that same comms associate is planning a trip to the beach (so she can put those new prescription sunglasses to good use). On the drive over, she can pick up some sunscreen, and later get that payment reimbursed.
In fact, there are so many expenses that can be covered by an HSA — if we listed them all, we’d be here all day. Safe to say that regardless of your employees’ unique health needs, an HSA can most likely be of some use.
How do health savings accounts (HSAs) impact employees?
Financial planning made easy
Because these savings accounts are tax-free, your employees get the full value of every dollar. Plus, each dollar put away into these accounts means one less dollar that will be taxed in their monthly paycheck. A lower taxable income = less taxes and more $$$ in your pocket.
And they’ll be happy they have these funds once it’s time for them to retire. Basically, HSAs function similar to an IRA or 401(k), but without the tax implications. So the funds in these accounts can be invested, gain some of those sweet compound earnings, and then used for qualifying expenses, sans taxes. So rather than pulling money from their regular savings for later-in-life medical costs, it’s HSA to the rescue — so they can use their cash to spoil their grandkids instead.
Improved access to medical care when it’s needed
About a quarter of Americans have put off medical care because of the cost. But if your employees already have money set aside specifically for medical costs, they may also be more likely to seek out medical care when they need it.
Plus, delaying medical needs can often lead to bigger problems — whether that be more serious symptoms, greater need for care, or more expensive treatment costs. For example, what was once an untreated minor sprained ankle may become a chronic issue in need of physical therapy. Same goes for preventative care: skipping out on an annual physical with your primary care provider may save a quick buck, but it could mean that a serious illness isn’t caught until the next time around.
Extra protection against high medical costs
We’ll say what we’re all thinking: healthcare can be really, really expensive.
To put it in perspective, the average cost of a three-day hospital stay hovers around $30,000. Sure, insurance will cover the majority of these costs. But even with insurance, affording an unexpected $3000 deductible is out of reach for most people.
While offering this benefit won't prevent high medical costs, HSAs help provide extra cushion against any unforeseen charges that may arise.
Why should employers offer health savings accounts (HSAs)?
We don’t need to tell you why you would want your employees to stay healthy — that benefit is crystal clear. But offering an HDHP/HSA plan can keep your business’ bottom line healthy as well.
First off, HSAs grant employers a range of tax benefits. For instance, you won’t be on the hook for payroll taxes on HSA contributions deducted through payroll. You’ll also get a federal income tax deduction on any contributions you make to your employees’ HSAs, plus the amount that your employees choose to contribute from their payroll.
Employee satisfaction, hiring, and retention
You can’t put a price on good health. Making the move to invest in your employees’ HSAs — and even give them some extra padding to cover their expenses — can really sweeten the pot for employee hiring and retention.
What are the best health savings accounts (HSA) providers?
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