A healthy and happy workplace is a productive and profitable one. That’s why many companies have started offering Health Savings Accounts (HSAs) to their employees.
“There are no retirement plan vehicles that offer a triple tax preference tax-free in, tax-free growth and tax-free out like an HSA does,” says Amy Chambers, director of consumer engaged health care for Priority Health, a Michigan-based health insurance plan. “Employers are able to lower their premiums immediately, and employees get the peace of mind knowing they can cover any unexpected future medical costs.”
Smart Business spoke with Chambers on what advantages both employers and employees can gain by getting involved with HSAs.
What is an HSA?
HSAs are employee-owned, portable, tax-free trust accounts. Employees, their employers or both can contribute to an HSA when the employee is covered by a high-deductible health plan. Employees may use the money at any time to pay for qualified medical expenses or save it for future expenses.
What are the advantages employers gain by offering HSAs to employees?
The financial benefit is that employers are able to lower their premiums immediately with HSAs and set themselves on track for lower long-term premium trends in the future. Another benefit is that HSAs will also play a competitive role in the labor market as many new workers are gravitating toward these types of plans. As these accounts take hold, employers will have the opportunity to maintain a competitive cost advantage while increasing their ability to attract and retain good, qualified employees.
The engagement of employees in their own health care will prove a benefit for both employees and their employers. Finally, employees will learn that there’s a direct connection between their good or poor lifestyle decisions and the higher costs that come with the poor decisions. We’re certainly not saying that all medical costs are attributable to lifestyle decisions, but we do know that many of them are.
What are the advantages employees can gain in participating in an HSA?
Employees must pay for their own services up to the deductible, but above that, there’s the security of the high-deductible plan with an out-of-pocket maximum. HSAs also carry great tax savings since HSA money goes in tax-free, grows tax-free and comes out tax-free, as long as it’s used for qualified medical expenses. There’s no other tax shelter like it out there.
Additionally, these accounts are portable, meaning that the money belongs to the employees and follows them through their careers. Employees can make their own health care decisions, and those who manage their costs well are rewarded with increased savings.
Finally, the longer they’re in the plan, the greater the savings. For many people, that will form a powerful part of their retirement plans in years ahead. The rewards of an HSA can be great. If an employer is willing to invest in their employees’ HSA education and can make a contribution to each employee’s account to get the ball rolling, an HSA can make financial sense for almost any employee.
Are there any disadvantages to HSAs?
The biggest is that they’re new, and for employees who don’t like change, ‘new’ can be bad. So, we don’t suggest that employers can just drop an HSA into their business and consider it done. They have to work at educating their employees on how these plans work. Employers need to make sure they understand how these plans will work for them. We also think it’s important for employers to keep supporting the plan after it has been launched. They must keep demonstrating their commitment to its success, keep educating people especially new employees and continue to help employees use the plan well and effectively. This isn’t a one-year tryout. Employers have to be in it for the long run for the benefits to accrue for themselves and their employees.
Where does an HSA stand in value in comparison to other employee benefits an employer can offer?
I would put an HSA right up there with the best that both health care and retirement plans have to offer. There are no retirement plan vehicles that offer a triple tax preference tax-free in, tax-free growth and tax-free out. The best an employee can get with a retirement plan offering is two tax preferences out of the three. Providing employees with a high-quality, sustainable health care product like a high deductible health plan, accompanied by a tax-preferred account like an HSA, could be an exciting addition to any employer's benefit lineup.
AMY CHAMBERS is director of consumer engaged health care for Priority Health, a Michigan-based health plan. Reach her at (616) 464-8540.