( by Saad Imran )
HSA is short for Health Savings Account, an account created for employees covered under high-deductible health plans. HSAs were introduced in 2003 to replace the medical savings account system. According to a report published in 2017, there will be 30 million HSAs by the end of 2019.
Making a contribution to an HSA is pretty easy. Both employers and employees can make contributions by check, bank transfers, or credit/debit cards.
For employees, an HSA is beneficial in several ways. Unlike a Flexible Spending Account, having an HSA allows them to save taxes on deposits and keep the money if they leave the company. They can also pay for many medical expenses with ease, such as vision care, dental care, prescription and over the counter drugs, etc.
For a complete list of expenses covered under HSA, click here.
HSAs also provide several benefits for employers. With many different Health Benefit Plans offered in the industry, what makes an HSA different? As an employer, is offering HSA worth it?
It definitely is, and here’s why:
Employers Save a lot of Tax
Tax-saving is one of the most significant benefits of offering an HSA as an employer. There are two ways employers save tax: lower payroll tax liability and FICA tax savings.
When you as an employer contribute to your employee's HSA, it is not considered a part of your employee's income, resulting in FICA tax savings. Having an HSA also allows your employee to make pre-tax payroll contributions, which lowers your payroll tax liability.
The current tax rate for FICA tax is 7.65% for employers. For maximum tax savings, employers should make more HSA contributions and increase the number of employees in their HSA program.
HSA Providers Charge Less Maintenance Fees
Both the Flexible Spending Account and Health Savings Account charge annual and monthly maintenance fees. The employer usually pays this fee. It may seem negligible, but with a large number of employees and hefty premium charges, it quickly adds up.
There is a stark difference between maintenance fees charged by FSA and HSA providers. The annual and monthly fees charged by Flexible Spending account providers are much more than HSA providers.
For example, the schedule of charges of Zenefits, an FSA provider, shows that it charges an annual fee of $150 with a monthly fee of $5 per employee for an annual contract and $4 per employee for a monthly contract.
On the other hand, Bank of America charges $2.50 as a monthly maintenance fee for an HSA. Most of the HSA providers charge a much less annual fee or no fee at all.
HDHPs are Less Expensive
According to a survey, large-scale employers project an increase of 5.3% in their healthcare plan costs in 2021. Telehealth services for mental health and other medical issues are the major causes of this cost increase.
HDHPs are short for high-deductible health plans. For an HSA, having coverage by these plans is mandatory.
HDHPs are an excellent employer healthcare option for a company looking to save on hefty premium costs as they offer fewer premiums and high-deductibles than other traditional healthcare plans.
Due to their fewer premium costs and other incentives, HDHPs have increasingly been offered by companies. According to a research report published in 2012, 24% of employers were offering HDHPs in their primary employer healthcare plans, increasing from 5% in 2007.
HSAs are Attractive to Employees
Providing perks and privileges to your employees has numerous benefits for your corporation. According to this article, it adds little to overall costs and increases employee retention. It also attracts talented people towards your company, resulting in an overall increase in profits and performance.
HSAs are an attractive perk to offer your employees as it helps them by providing more flexibility and portability in managing their medical expenses. If an employee pays for their medical expense out-of-pocket, the expense amount can easily be reimbursed later. The later reimbursement has, in turn, many financial benefits for them.
Providing an HSA to your employees has immense benefits for employers. To get an estimate of the total value of an HDHP and an HSA, you can use these free tools.