Insights

Taking a Second Look at HSAs


When it comes to health savings accounts (HSAs), knowledge is power. Employers and employees alike are learning that HSAs are a great way to set money aside to pay for qualified expenses, as well as a great retirement savings opportunity. Designed to help people in high-deductible health plans manage their out-of-pocket expenses, HSAs have been growing steadily in the market since their inception and are a prominent feature of today’s employee benefits landscape.

HSA Overview

An HSA is a type of savings account that allows an employee to set aside money on a pre-tax basis to pay for qualified medical expenses. In order to open an HSA, an individual must first enroll in a qualified high deductible health plan (HDHP). An HDHP is thought to lower overall health care costs because the higher deductible lowers insurance premiums, which makes health coverage more affordable for employees and employers. An HDHP also forces individuals to become more conscious of their health care consumption.

What's So Great About HSAs?

For Employees

For the employee, an HSA is essentially an individual bank or trust account that acts in conjunction with a qualified HDHP into which the employee can contribute funds on a pre-tax basis, then withdraw those funds – tax-free – when paying for qualified, medical-related expenses, including a portion of long-term care (LTC) insurance premiums.

HSAs also have the potential to be just as advantageous as 401(k)s or Roth IRAs for investments, in general, thanks to their tax trifecta efficiency. The HSA is owned solely by the employee, can accept both employer and employee contributions, and is transferrable to any custodian the employee chooses regardless of employment status. The balance can grow and carry from year to year and can also be invested. In fact, if implemented early in an employee’s career and, especially if contributed to by an employer, an appropriately invested HSA can potentially build a healthy nest egg that will help with health care costs in retirement.

For Employers

From the employer’s perspective, a robust and effective health and wellness offering that includes an HSA helps to simultaneously attract and retain top talent and keep employees engaged in their work. While many employers offer an HDHP because it’s less expensive than traditional insurance, the addition of an HSA also provides tax savings for an employer. Neither the employee nor the employer has to pay payroll taxes on HSA contributions deducted via payroll (as long as they establish a valid Section 125 plan, which can be very simple to do). An employer may also take a federal income tax deduction for any contributions it makes into its employees’ HSA accounts.

NFP — Marrying Health and Wealth

Partner with NFP to raise the bar in how you’re providing for your employees and provide a robust program that’ll keep your business and your people thriving. We’ll help you and your employees stay on top of regulation changes coming from Washington, discover new ways to save that don’t come at your workers’ expense, and deliver expert benefits solutions matched only by our retirement and compliance know-how.

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