As a staffing services firms serving Houston, Texas, we understand that dealing with the cost of health insurance has become an expensive issue for many local employers. Case in point. Since 2002, the cost of healthcare in the U.S. for a family of four has doubled from just over $9,000 to more than $19,000, according to the Milliman Medical Index. To cope with this exploding growth, some employers are now turning to Health Savings Accounts (HSAs).
What is an HSA?
Simply put, HSAs are like savings accounts, except that the money in them is used for medical expenses. Unlike savings accounts, though, an HSA must be used in conjunction with a high deductible health insurance policy, according to Treasury Department regulations. The money put away in the HSA is then used for medical expenses until the high deductible is met. Unused funds remain in the account and earn interest tax-free.
While there are certainly advantages to HSAs, there are drawbacks as well. So before you decide to make the switch to an HSA plan for your employees, make sure you carefully weigh the risks and rewards.
Benefits of HSAs
- High-deductible health plans typically have lower premiums than other health insurance plans.
- If an employee doesn’t use the funds one year, that money will be rolled over to the next year, unlike many flex plan accounts where if you don’t use the money by a certain date, you lose it.
- Funds deposited into an HSA account are exempt from federal income tax as long as that money is used for qualified healthcare expenses. However, after the age of 64, funds can be withdrawn from the account and used for any purpose.
- All HSA funds are portable (whether deposited by the employee or by the employer), meaning an employee can keep their HSA even if they change jobs.
Disadvantages of HSAs
- As stated above, employees have to enroll in a high deductible health plan to qualify for an HSA. As a result, they have higher out-of-pocket healthcare expenses to pay.
- If the money in the HSA is used for something other than qualified healthcare expenses (until the age of 64), those funds are added to the employee’s gross income and are taxable.
- The IRS limits how much an employee or employer can contribute in a given year; limits are adjusted annually. In 2011, for instance, the maximum contribution is $3,050 for an individual and $6,150 for a family.
- If employers don’t contribute, employees have to be diligent about saving enough money. Otherwise, the account won’t be adequately funded, a problem if an employee’s medical costs exceed the HSA balance.
If you’d like additional help dealing with HR- and staffing-related issues, please contact Murray Resources. Our Houston, Texas staffing services firm can offer the knowledge and solutions to help you successfully manage your staffing & HR function.