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 and form a positive perception of them.
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 decision-making and improved cost containment.
Communications to employees should complement educational messages by describing the direct advantages of an HSA to the employee.
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. Provided the IRS defines an expense as HSA-eligible (and the sponsoring employer has not narrowed that definition), employees can opt to use HSA funds to pay for eligible expenses 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. There are no “use it or lose it” rules for HSAs, which increases the opportunity for the account to grow and form a nest egg for future health care expenses, including in retirement.
HSAs are portable, meaning employees continue to enjoy their account even if they leave the sponsoring employer, change medical coverage, change marital status, or move to another state.
HSAs also offer tax advantages: employer contributions are generally excluded from an 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 thoughtful plan design and clear, concise communications increases the likelihood that the plan will meet employer goals and be accepted enthusiastically by employees. Employers often partner with custodians or banks to administer accounts and information about custodial options can be found through providers such as Savings Institutions, Federally Chartered Insurance.
If employees need help understanding plan rules or enrollment, encourage them to talk to an agent who can explain plan details and custodial arrangements.
Frequently Asked Questions
What expenses can I pay for with an HSA?
HSA funds may be used for IRS-qualified medical expenses, commonly including doctor visits, prescription drugs, dental care, and vision services; plan and IRS rules determine eligibility.
What happens to unused HSA funds at year-end?
Unused HSA dollars roll over from year to year and can accrue interest or investment earnings, allowing balances to grow over time.
Are HSA contributions tax-advantaged?
Yes. Employer contributions are generally excluded from gross income, employee contributions may be made pre-tax or deducted, and qualified withdrawals are tax-free.
Can I keep my HSA if I change jobs?
Yes. HSAs are portable, so you generally retain the account and its balance even if you change employers or health plans.