What you need to know about HSA’s
An HSA is simply a tax-advantaged medical savings plan for those in a qualified high deductible health insurance plan. Folks with a high-deductible health plan are able to contribute money into an account without paying taxes on the deposits. In many cases, employers will have an HSA available for employees to contribute to, and may also make contributions on behalf of the employees as well. Once the funds are in the account, owners can take the money out for medical expenses. Whatever funds have not been used for qualified medical expenses can roll over from year to year to continue to accumulate – again, tax deferred.
Why Employers Should Consider Offering HSAs
- HSAs Promote Responsible Utilization of Healthcare Services
Health Savings Accounts give employees the financial incentives to become responsible consumers of healthcare and, at the same time, they help employees save for a rainy day.When employers switch from a more expensive low-deductible plan to a less costly high-deductible one, they typically find the savings will fund the HSA.
Employees benefit in several ways:
- HSA dollars can be used for first-dollar expenses under the deductible.
- HSA dollars vest immediately and are the employee’s to keep (unspent funds roll over year after year tax free)
- Contributions and reimbursements for medical expenses are tax free.
- Motivated to maximize their HSA dollars, HSA owners may reduce discretionary utilization of care by as much as 50%.
- Reduced utilization typically means lower premium increases – HSAs can reign in the costs of your benefits.
Why Employees Should Consider an HSA
The concept is simple: Take the savings of going to a higher deductible plan and give it to the employees for expenses under the deductible. The employees keep what they don’t spend.
Things to Consider
Assume you have the following health plan: $500 deductible, $2,000 out-of-pocket maximum and $10 office visit co-pays and $10 to $20 drug co-pays.
1. How much do you pay in co-pays?
- Co-pays don’t apply to the deductible
- Many generic drugs cost the same as co-pays
2. If you had a major medical event, how much would you have to pay in your current plan?
- $500 in co-pays (estimate)
- $500 in deductible
- $2,000 out-of-pocket max
- $3,000 – Similar to an HSA based plan
3. What would choice feel like?
- You choose how to spend your HSA dollars: vision, dental, alternative medicine, etc.
- You can go to any doctor – It’s your money*
*In-network providers will typically have better discounts; benefits will vary for out-of-network providers. Check your plan document for details.
Contact us today for more information about Health Savings Accounts.