For the past few years, employers have been increasing employee cost-sharing as a means to help control rising health care premiums. The use of higher deductibles, coinsurance and co-payments have helped reduce premium costs, but many employers are finding now that these measures alone are not doing enough.
Employers can engage employees to make cost-conscious decisions. This “consumerism” approach to health care is the idea behind High Deductible Health Plans (HDHPs) and Health Savings Accounts (HSAs).
Smart Business spoke with Amy Broadbent, a consultant for Chamber-Choice, about the consumerism approach to health care and recent changes to HSA rules and regulations.
Are all employees enrolled in an HDHP required to open an HSA?
No. It is up to each employee to make his or her own decision as to whether to open an HSA. If an employee does open an HSA, the account is owned and managed by that individual. Employees make investment selections based on whether they need ready access to their funds or want to save to meet long-term health care needs.
What are the tax advantages of an HSA for employees?
Contributions to the HSA are exempt from taxes, and any interest the account earns is tax-free. Withdrawals are not taxed, as long as they are used for eligible medical expenses. The account is fully portable, so employees who change jobs can take their savings account with them.
As more employees move toward qualified high-deductible health plans, it is important to understand the issues that affect HSA plans and the tax advantages that employees in these plans can enjoy. Congress passed the Tax Relief and Health Care Act of 2006, which included provisions expanding HSAs.
How does the act affect Flexible Spending Account (FSA) contributions?
The act permits an employee to make HSA contributions during the post-year-end FSA grace period if the FSA balance was zero at the end of the plan year, or the employee transfers the FSA account balance to the HSA.
How is an HRA/FSA transfer made to an HSA?
The act allows a one-time transfer from an HRA and/or an FSA to an individual’s HSA between the date of enactment and Jan. 1, 2012. The transferred amount may not exceed the lesser of the FSA or HRA account balance as of Sept. 21, 2006 or the account balance as of the date of the transfer. Only employees eligible to make HSA contributions may make such a transfer.
Is there any impact on contribution limits?
The act allows annual contributions of up to the statutory maximum, regardless of the individual’s actual deductible amount. For 2007, the annual maximum contribution is $2,850 for single coverage and $5,650 for family coverage.
Does the act allow mid-year enrollment contributions?
It allows individuals who are HSA eligible in December to contribute an amount up to the full HSA annual contribution limit. If the individual does not remain eligible for the following 12 months, then all contributions for the months during which the individual was not eligible will be included in gross income and subject to a 10 percent excise tax.
The act’s provisions are generally positive in terms of the HSA rules because they provide opportunities for participants to build their funds and make it easier to put money aside for personal health care. There are, however, many nuances and specifics of the act that remain to be addressed.
Among firms that offer health care benefits, percentage that say they are "very likely" or "somewhat likely" to offer HDHP/HSA in the next year.
AMY BROADBENT is a consultant for ChamberChoice. Reach her at firstname.lastname@example.org or (412) 456-7250.