As more employers offer Health Savings Account (HSA)s as part of their health plan mix, they need to make certain that employees understand how to use the plans. Additionally, the goal should be to help employees form a positive perception of HSAs.
Some reasons to consider an HSA
- Health care costs continue to rise rapidly.
- The increasing share of company funds allocated to health care represents funds not spent on product innovation, capital investment, and other corporate and employee needs.
- Increased employee involvement in how health care dollars are spent can lead to better health care decision-making by employees, together with improved overall cost containment.
Complementing such educational messages should be communications that describe the direct advantages of an HSA to the employee.
Advantages for employees
- HSAs provide flexibility. They allow the employee to decide how to spend their health care dollars. Health care expenses typically not covered by the primary health plan — such as vision, dental, and orthodontic expenses — can be paid from the HSA.
- HSAs allow employees to control their health care dollars. So, provided that the IRS has defined an expense as payable from an HSA (and the employer sponsoring the HSA has not decided to narrow this definition by plan design), employees can opt to use the HSA to pay for the expense, without regard to health plan authorization requirements or other limitations.
- Unused dollars contributed to the HSA roll over into subsequent years, and the account earns interest. In other words, there are no “use it or lose it” rules for HSAs. These features increase the opportunity for the account to grow, generating a nest egg for future health care expenses, even into retirement.
- HSAs are portable, meaning that employees continue to enjoy their coverage even if they leave the sponsoring employer, change medical coverage, change their marital status, or move to another state.
- HSAs offer considerable tax savings: Employer contributions are not considered part of the employee’s gross income, employee contributions can be made on a pre-tax basis (or are deductible if made with after-tax dollars), and withdrawals used for permitted health care expenses are tax-free.
Taking the time to explain HSA options — through a thoughtful consideration of the overall health plan design and through clear and concise communications to employees — enhances the likelihood that the plan will meet employer goals and be accepted, enthusiastically, by employees. For information on institutions that often work with these accounts, see Savings Institutions, Federally Chartered. If employers want direct help implementing or explaining plan options, they can talk to an agent.
Frequently Asked Questions
What is an HSA?
An HSA is a tax-advantaged account used to pay or save for qualifying medical expenses when paired with a high-deductible health plan.
Do HSA balances expire at year end?
No — unused HSA dollars typically roll over year to year and can grow with interest or investments, subject to plan terms.
Can I keep my HSA if I change jobs?
Yes. HSAs are generally portable, so the account and its funds remain available if you leave your employer, subject to plan rules.
Are HSA withdrawals taxed?
Withdrawals used for qualified medical expenses are usually tax-free; nonqualified withdrawals may be taxable and could incur penalties.