HSA—The Smartest Benefit For Employers And Employees

HSA—The Smartest Benefit For Employers And Employees

Health Savings Accounts (HSAs) are individually owned healthcare reimbursement accounts that allow tax-free dollars to fund the account. Interest or dividends accumulate tax free, and payment of qualified medical expenses are tax free. And, to make it the grand slam of all benefits, there is no limit on the amount of money that may accumulate in the HSA. That’s why an HSA is a healthcare benefit that can be used now and for future medical needs.

Requirements for setting up and contributing to an HSA

  • Must be covered by a qualified high-deductible health plan (HDHP). The HDHP must satisfy minimum deductible amounts and certain out-of-pocket maximums.
  • May not be covered by any other insurance plan that is not an HDHP or that covers benefits provided by the HDHP.
  • May obtain “permitted insurance” or “permitted coverage” products such as policies that provide dental, vision, accident, disability, and long term care benefits.
  • The HDHP may also provide preventive care that is below the minimum deductible amount or with a deductible.
  • Cannot be covered by health plans that provide co-payments or first dollar coverage for prescriptions.

An individual setting up an HSA must be eligible to establish the account on the first day of any month. For instance, if she is covered by an HDHP on June 15, the HSA could be established on or after July 1. She also does not have to decide before the beginning of the plan year what to contribute for the entire plan year. Generally, changes to HSA elections do not require a change in status and may be changed as often as monthly if the plan document supports this option.
Easy set up and pre-tax contributions transferred to the HSA makes saving money easy.

Reimbursements/payments from an HSA
Individuals do not have to be covered by an HDHP for any month. In other words, although participants may not be able to contribute to their HSA, the funds are still available to pay for qualified medical expenses—including COBRA continuation premiums.

Qualified medical expenses include COBRA or Uniformed Services Employment and Reemployment Rights Act (USERRA) continuation coverage, long term care insurance and services, prescribed drugs and medicines, any health plan premium while the individual is receiving unemployment, and, after age 65, any qualified health insurance other than a Medicare supplemental policy.
Add a debit card for accessing the funds and here’s a benefit that everyone will want.

Putting HSA money to work
HSAs are personally owned savings vehicles. They earn interest and can be invested. Just like a 401(k) plan, investment options are available. Remember, interest and earnings are not taxed and the HSA balance is not limited.

HSAs are powerful retirement planning tools. A financial adviser can illustrate how funds from an HSA, when used for eligible medical expenses, will go a lot further than from a 401(k) plan. That’s because the HSA money is not taxed if withdrawn for eligible medical expenses.

Medical expenses continue to rise. It is estimated that couples retiring right now might expect to spend about $250,000 on medical expenses during their retirement. Funding in an HSA now can be there to pay medical expenses in the future. In fact, contributing the maximum limits every year to an HSA may reap more benefits at retirement. Qualified medical bills paid from an HSA are not taxable and this preserves money in the 401(k) account. And HSAs do not require any obligatory withdrawals.

Young or old, large or small medical bills —everyone benefits.

Janet LeTourneau, ACFCI, is the director of compliance services at WageWorks. She draws upon more than 25 years of experience with flexible benefits plans and tax laws to perform consulting services and monitor quality control.

LeTourneau is a frequent speaker to employer groups and conferences and was formerly on the board of directors for the Employers Council on Flexible Compensation (ECFC) and is a current member of the ECFC Technical Advisory Committee (TAC). She is the lead instructor for the Section 125 administrators training workshop.

LeTourneau was one of the first people in the country to earn the Advanced Certification in Flexible Compensation Instruction designation sponsored by the Employers Council on Flexible Compensation. She is a certified trainer in the ACFCI program.

LeTourneau can be reached by telephone at 262-236-3021 or by email at jan.letourneau@wageworks.com.

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