Health insurance costs keep climbing. What if part of the solution isn’t paying more but thinking differently? A tax-advantaged Health Savings Account (HSA) does more than help employees set aside money for qualified medical expenses. It can also offer your organization a way to combat rising health insurance costs. Many employers views HSAs as a spending tool. The opportunity is to start treating them as an investment tool.
An HSA can lower your fixed costs by reducing premiums and shift dollars into employee-owned savings instead. In other words, you’re not just absorbing rate increases. You’re redirecting money in a way that builds long-term value for both your business and your employees.
- Triple Tax Benefits
- Funds come out of employees’ paychecks before taxes, reducing their taxable income.
- Investments grow tax free. Any interest or investments gains are not taxed.
- Qualified withdrawals are 100% tax-free. As long as money is used for medical expenses (including vision, dental, and even some over-the-counter medications), it is not subject to tax.
For those in a 25% tax bracket, using an HSA is like getting a 25% discount on every visit to the doctor.
- Lower Insurance Premiums
Because an HSA is available only with a High-Deductible Health Plan (HDHP), premiums are typically lower than traditional health plans. That reduces your fixed, recurring costs, and your employees’ expenses, too, when they are contributing the premium.
- Portability
Employees own their HSAs, not their employers. That means, if employees change jobs, they can take their accounts with them. The same is true when they retire.
- No “Use It or Lose It”
Unlike funds in an employer-sponsored Flexible Spending Account, HSA funds do not expire. They carry over to the next plan year. That allows employees to build a tax-free nest egg for future medical expenses, even those incurred during retirement.
- Broad Flexibility
HSA funds can be used for copayments, deductibles, prescription drugs, and other qualified expenses. If funds are used for non-qualified expenses before age 65, they subject employees to taxes and a 20% penalty.
- Post-Retirement Benefits
After age 65, funds are available for non-medical expenses without a penalty. (They are still subject to income reporting and potential taxes.)
- Potential Employer Contribution
According to Fidelity, about 84% of employees enrolled in an HSA-eligible health plan receive a contribution from their employer. It is like a 401(k) match for employees’ health. Plus, it is deductible for your business. Employee Benefit News says employers that contribute to employees’ HSAs have much higher participation rates.
You Have Options with CaliforniaChoice
If rising premiums are putting pressure on your benefits budget, it may be time to take a closer look at HSA-qualified plans. CaliforniaChoice includes more than a dozen HSA-qualified plans, including HMOs and PPOs in multiple ACA tiers. Talk with your broker or benefits consultant about running a side-by-side comparison. You may find that shifting to an HSA strategy not only reduces costs, but creates long-term value for your employees.