Happy 20th to HSA's

We just celebrated 20 years of Health Savings Accounts (HSA’s) being available for consumers in the healthcare space, and interestingly enough – we find that the benefits are still misunderstood by the general public, and certainly employers miss how powerful this tool can be.?

Research conducted last year indicated that we have over 35.5 HSAs that existed at the end of 2022, covering over 71 million lives.? (insert link).? These HSAs are being embraced by the young and the old.? About 1 in 5 millennials had an HSA, and for adults over 50, the average balance is $4,642.?

So let's talk about the benefits of an HSA from both the employer and employee perspective.?

The Employer

With healthcare expenses going up, employers need to think both about how to help their employees, as well as their bottom line.? Often this becomes a tug-of-war of conflicting priorities.? The HSA comes to the rescue here.?

Any good administrator of Benefits can help set employers up on a Section 125 cafeteria plan. Employers benefit through reduced employer FICA taxes and federal unemployment (FUTA) taxes.? Consider that employers currently pay ? of the 15.3% payroll taxes (7.65%).?

In 2023, the average employee with a family spent $6,575 in benefits from their own check.? Having a Section 125 plan set up would save the employer $502 in payroll taxes.? But wait, there is more.? We are forgetting that employees will also want to then contribute to their HSA pretax dollars to use for medical expenses.? The limits for this are currently $4,150 for individuals and $8,300 for families.? Using the same example above for a family, if an employee contributes another 4k of pretax dollars into the HSA to be used for medical expenses, then the employer saves another $306 in payroll taxes, bringing total savings for the employer to over 800 a year in this example.?

Employers who understand this magic often take some of that money saved and offer to add this to monthly contributions within an HSA for the employees.? Imagine how employers can be the Hero, in not only offering the medical plan to the employees but also indicating that if they participate in an HSA, the company will contribute $ each month.? Guess what? That contribution can become another write-off for the business as well.? If the employer offers to contribute a one-time amount, or perhaps $50.00 each month, they will find more employees are likely to sign up, and the company is likely to save more $.?

The employer truly has the opportunity to be a hero here.? Offering benefits to the employees, and adding funds to an HSA, are powerful tools to encourage the adoption of a benefit offering.? This in turn has a virtuous effect – it engenders loyalty, and a tangible benefit seen each month is the HSA savings account by the employee.? This should result in improved employee retention and help save even more $ for the employer with reduced recruiting or training costs. ?

Employers should make sure they have someone helping them with the administration of this and ensure that their HSA custodian handles the administration of these accounts.?

The Employee

What about Employees?? For employees, HSA’s offer a triple tax advantage.? Let's walk through these briefly:

Your contributions may be 100 percent tax-deductible, meaning contributions can be deducted from your gross income.? This saves employees money because the contributions are exempt from federal income tax, Social Security and Medicare (FICA) taxes, and most state income taxes.

All interest and earnings (funds can be invested at some point usually) earned in your HSA is 100 percent tax-deferred, meaning the funds grow without being subject to taxes unless they are used for non-eligible medical expenses.

Withdrawals from your HSA are 100 percent tax-free for eligible medical expenses (i.e., deductibles, copays)

Employees should also realize that once funds are contributed to a HSA they remain funds for the employee – even if they leave the employer.? They can take this with them, and save for a rainy day, medical expenses in retirement, etc.?

Note:? If this is not available through your employer, you can choose to make post-tax contributions and claim a tax deduction on your tax return. Again, it’s important to keep in mind the annual contribution limits determined by the IRS to ensure you receive the full tax benefit.

Conclusion

On the 20th Bday celebration of the HSA, employers should consider carefully a strategy of offering funds for employees' HSA. This can be done almost for 'free' as described above. Any employee who is in good health should consider an HSA if they have a plan that qualifies for it (i.e. high deductible plan).? This is a great way to save for the future while reducing taxable income.? Complaining about high medical costs? Use an HSA to help reduce the burden.

Follow me for secrets on how I have helped businesses, and their employees use HSA’s with emergency plans that have the employee paying as low as $1000 out of pocket.? Too good to be true?? It's a healthcare innovation and you can go to Planstin.com for more information.? ??