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At NCA, we know that controlling costs and keeping employees happy, healthy, and engaged is important. Offering a qualified high-deductible health plan (HDHP) paired with a health savings account (HSA) can be a powerful strategy that allows employers to not only reduce spending, but also help their employees prepare to manage their growing healthcare responsibilities, both now and into retirement.
HSAs allow employees to set aside pre-tax dollars for eligible healthcare expenses, while reducing FICA and federal unemployment tax liability. Unused funds carry over year to year, and employees can invest what they don’t spend, enabling them to build a nest egg for the future. By empowering employees to take charge of their spending, they remain invested in making smart healthcare decisions.
Below is a complete outline of HSAs - what they are, how they work, and how you save!
What is an HSA?
A health savings account (HSA) offers employees a tax-advantaged way to pay for healthcare and encourages them to save for out-of-pocket expenses. The employee must be covered by a high-deductible health plan to be able to take advantage of an HSA.
Some advantages of HSAs include:
►Triple tax savings (HSAs are the most tax-advantaged account in the current tax code!)
►Interest and investments
►Easy access to funds with a debit card and online account
►Portability – an employee can take the account with them if they leave the company
What is a high deductible health plan?
A high-deductible health plan (HDHP) is health insurance with deductible amounts that are greater than standard insurance plans. The monthly premiums for this type of health insurance are typically less expensive because employees agree to take on more of the upfront cost of medical care.
For 2021, the IRS requires:
►Deductibles are at least:
–$1,400 for individual coverage
–$2,800 for family coverage
►Maximum out-of-pocket expenses do not exceed:
–$7,000 for individual coverage
–$14,000 for family coverage
Why Companies Should Offer HSAs
Employer savings
►High-deductible health plans
–HDHP premiums are much lower than the typical HMO and PPO premiums. Businesses are finding these health plans affordable for their companies and employees.
►Savings on payroll taxes
–Maximize company savings by maximizing your employee enrollment in an HSA. The more employees enrolled and the higher their contributions, the more the company saves on payroll taxes. Employers can also increase their tax savings by contributing to employee accounts.
Who is eligible to participate?
An employee or individual can contribute to an HSA as long as they are:
►Covered by a qualified HDHP
►Not covered by another “first-dollar coverage” health insurance
►Not enrolled in Medicare
►Cannot be claimed as a dependent on someone else’s tax return
How it works for employees:
►Voluntary salary reduction election
–An HSA enables an employee to be reimbursed with his or her own pre-tax dollars for eligible expenses not covered by a health plan. An employee participating in an HSA voluntarily elects to reduce his or her salary by a specified amount each year.
►Triple tax advantage
–Contributions are made tax free
–Balance earns interest tax free
–Qualified distributions from the account are tax free
Contribution limits:
►The IRS sets annual limits on HSA contributions. The limit includes contributions from all sources. The 2021 annual contribution limits are:
–$3,600 for an individual
–$7,200 for a family
Catch-up contributions:
►Account holders who are 55 or older are allowed to make an additional $1,000 contribution each year. The full catch-up contribution can be made in the year they turn 55. Individuals may not make catch-up contributions for spouses turning 55, as only the account holder’s age is taken into consideration.
Qualified healthcare expenses:
HSAs cover an extensive list of eligible, reimbursable expenses, as defined by the IRS. Qualified medical expenses are expenses for healthcare services for the participant and his or her spouse and dependents that are not paid by insurance.
►Medical expenses paid with HSA dollars cannot be claimed as a deduction on a tax return
►Medical or other insurance premiums are not qualified expenses
►Participants receive 1099-SA reporting at the end of the year, which includes the total amount of distributions from the account
Sample expenses:
►Copays & coinsurance
►Dental checkups
►Vision exams
►Contacts & eyeglasses
►Laser eye surgery
►Prescription drugs
►Over-the-counter medications
►Chiropractic care
►Orthodontia
Investment account features:
►Account holders must maintain a specific amount in their HSA before investing – this ‘maintain balance’ is displayed on the account holders’ investment account page
►HSA money in excess of the HSA ‘maintain balance’ can be transferred by the participant into an investment account
►Investment options include a standard list of mutual funds
►Similar to a 401k plan, participants can set up allocation models for future contributions
►Participants can transfer money to or from their investment account at any time
Health savings accounts (HSAs) are powerful investment vehicles that help employees get the most value from their healthcare dollars as well as save for future healthcare needs. Ensure your employees are able to put their hard-earned dollars to work with North Coast Administrators’ HSA benefit.