Encourage Your Employees To Take Advantage of the Benefits of an HSA
Health Savings Accounts (HSA) are a valuable benefit for employees, and employers should encourage employees to take advantage of these programs. Slightly less than half of employees in the United States use their HSA. This means there is plenty of room for employers to boost participation amongst eligible employees.
High Deductible Health Plan Requirements
To participate in an HSA, employees must be enrolled in a High Deductible Health Plan (HDHP). For 2020, this means that the minimum deductible for the plan is $1,400 for individuals (with a maximum out-of-pocket cap of $7,000) and $2,800 for families (with a maximum out-of-pocket cap of $14,000). These are high deductibles, but for employees in good health, these can be cost saving policies that are well worth considering.
Advantages of an HSA
Employees can deduct their HSA contributions from their current taxes. Moreover, they can invest their pre-tax income (For 2021, contribution limits are $3,600 for individuals and $7200 for family plans*) into an HSA without paying taxes on the income earned or capital gains so long as the money remains in the account. Further, individuals can withdraw their HSA funds to pay for eligible healthcare expenses without paying taxes on the withdrawal.
The only time an employee will need to pay taxes on their HSA is if they choose to withdraw their assets for other purposes, at which point they have to pay a 20% penalty if they do so before age 65. However, after age 65, these withdrawals are taxed as ordinary income without penalty if withdrawn for purposes other than healthcare expenses.
Perhaps the most appealing advantage is that there is no expiration date on an HSA. Unlike Flexible Spending Accounts, which must be zeroed out each year, HSAs can carry over into the future for as long as the individual desires. This means that employees can take them with them when they transfer jobs or retire. With careful planning and calculation, an individual can finance a considerable amount of their lifetime healthcare expenses by participating in an HSA.
* Individuals age 55 or older can contribute an additional $1,000 catch-up contribution.
HSAs Are an Invaluable Asset That Fit Into the Bigger Picture
The human body is not indestructible. At some point, we all need to visit the doctor. As our bodies age and our health becomes frail, quality healthcare becomes a top priority. Unfortunately, healthcare expenses are rising at exponential rates. Investing in an HSA today provides a hedge against the rising cost of prescriptions, surgery, chemotherapy, and other treatments. Whether an employee is 25 or 55, the strategic use of an HSA is something that employers should encourage. Like a 401(K), Roth IRA, and other retirement vehicles, an HSA is a hot rod that should be in everyone's garage.
Of course, it isn't easy to forecast the future. For this, it is advisable to encourage your employees to sit down with your company's financial advisor. They can help your employees take stock of their current assets and financial situation. Most importantly, a qualified financial advisor can help them maximize their FSA, HSA, 401(k), and Roth IRA contributions to achieve their long-term financial goals. For employers, it is well worth facilitating these meetings because an employee who isn't worried about what tomorrow will bring will be more focused on doing the work your company depends upon today.
Contact Greenlink Payroll at (480) 385-2525 for more information about HSAs. We'll tell you more about the strategies you can use to encourage your employees to participate in your retirement plans, FSAs, and healthcare plans.
