HSA and HDHP Plans Are Common Practice, But Why?
As a Benefits Consultant, I value the opportunity in providing employers the tools they need to establish and maintain a high level of Benefits that best fit their company. After all, employees are our greatest asset! I’m not here to introduce breaking news, but simply bring awareness to a program that was signed into law in 2003. A rapidly growing program, the Health Savings Account (HSA) is becoming common practice. It is my belief that the new administration will continue to support tax incentive programs such as this going forward.
An HSA has three tax-exempt advantages for the employee:
- Employee contributions are tax-free.
- Earnings, such as interest, accumulate tax-free.
- Reimbursements for qualified Medical Expenses are tax-free.
To utilize an HSA, employees will need to enroll in a high deductible health plan (HDHP). Consumerism is critical in an environment of increasing medical costs. Therefore, “Consumer Driven Health Plans” (sometimes referred to as high deductible health plans) are an excellent option for employers to offer.
How can I apply these plans?
- Typically provide a premium savings to both the employer and employee.
- Empowers employees to make sound health care decisions.
- Because it is the employees’ money, they will gain a better understanding of how to manage their care and potentially reduce excessive costs by using cost-efficient quality care providers.
- Wellness awareness and improved lifestyle behaviors will positively impact the employee’s costs which will in effect benefit the health of the employee.
- There is NO “use it or lose it” clause! The accumulated savings can carry over year after year and be used ultimately for various costs at retirement age.
- In addition to reimbursing yourself for medical costs year by year, money later in life can be used for Medicare premiums, various types of long term care, and/or become taxable income at retirement.
A great way for employers to implement an HSA Qualified Health Plan into their benefits program is to add it as an option instead of simply replacing a current lower deductible plan. If you offer employees the option to “buy up” on the lower deductible co-pay plan, in essence they can continue to pay a relatively higher employee portion to keep this option. Then, offer the HSA qualified plan with a savings in premium to both the employer and employee. I suggest for the additional HSA plan to be most effective and well received from the employees, the employer take their savings and offer to inject the money into the employee’s Health Savings Account. Some employers, for example, might offer to put half of the deductible amount into the savings account.
HSA Limits in 2017:
HDHP minimum deductible: $1,300 single coverage, $2,600* family coverage. Maximum out-of-pockets of $6,550 single coverage, $13,100 family. *The individual deductible within a family plan must meet the minimum required deductible of $2,600.
HSA maximum contributions (either employee or employer, NOT both individually) are $3,400 single coverage, $6,750 family coverage. Individuals age 55 or older may contribute an additional $1,000 to help “catch up.”
Please keep in mind there are various situations that can create temporary but critical issues when rolling out an HSA qualified plan. One can’t be covered by any other health insurance that is not HSA compatible. If the employee is engaged in a Medical FSA, they can’t contribute to an HSA. If a spouse has a Medical FSA, the employee can’t participate in an HSA.
Because there are many moving parts to this conversation and with the multiple pros and cons to my comments, I highly encourage you to consult with a trusted consultant to assist you in applying a fully compliant HSA program. Educating employees before, during, and after implementing this program is also very important.
Our Benefits team at Hausmann-Johnson is well versed in various types of benefit programs and are here to help. Thank you!
Kyle Von Ruden
Benefits Consultant & Principal