Healthcare costs continue to rise and the message for 2017 is that employers expect them to increase by another 4%, and that’s after shopping for the best price and incorporating plan design changes. So what are employers doing to control costs and slow the rate health insurance premiums increase each year? Many are implementing Consumer Driven Health Plans that can be paired with a tax advantaged Health Savings Account. The Kaiser Family Foundation just released this month an annual study of private insurance trends which found that nearly 3 out of 10 employees have these types of health programs, up from 2 out of 10 in 2014. So what’s with all the hype about a Health Savings Account (or HSA)?
When a Consumer Driven Health Plan is paired with an HSA, there are several advantages:
- Lower premium cost to the employer with an added ability to contribute to an employee’s HSA.
- Unlike Flexible Spending Accounts (or FSA), HSA funds rollover from year to year. There’s no “use it or lose it” clause.
- The HSA funds can grow and earn interest to be used for future eligible expenses.
- While a retirement plan like a 401(k) is tied to a specific employer, an HSA is not. As long as the current health plan meets the deductible requirement and permits an employee to open an HSA, one can be opened at any financial institution offering HSAs, but be sure to have employees shop around for a quality HSA product as you may incur different fees with some financial institutions that reduce the available HSA fund balance.
- Funds can be withdrawn tax-free at any time for qualified medical expenses. After age 65, withdrawals can be made to pay for non-medical expenses, but the funds will be taxed as income (similar to an Individual Retirement Account or IRA). Prior to age 65, a 20% penalty on withdrawals for non-medical expenses will apply as well as taxes.
For your employees, if HSA funds are used only for qualified medical expenses, they net a triple tax break: the pretax benefits of an IRA, the tax-free withdrawal benefits of a Roth IRA and the tax-free growth benefits of both. For an employer, you get a lower cost and more sustainable approach to your health insurance program.
At Allegacy Benefit Solutions, we assist employers with developing effective cost containment strategies as well as provide education to your employees about the advantages of Consumer Driven Health Plans and HSAs. Let us help you bend the premium increase curve! Call 336.765.2101 / 877.765.2101 or email email@example.com.
Long, M. Rae, M Claxton, G. Danico, A. (2016). Trends in Employer-Sponsored Insurance Offer and Coverage Rates, 1999-2014. Retrieved from [external link=”http://kff.org/private-insurance/issue-brief/trends-in-employer-sponsored-insurance-offer-and-coverage-rates-1999-2014/”]http://kff.org/private-insurance/issue-brief/trends-in-employer-sponsored-insurance-offer-and-coverage-rates-1999-2014/[/external]