A health savings account (HSA) is a tax-advantaged savings account that you and your employees can contribute to and use for qualified medical expenses, such as deductibles, copayments, coinsurance, prescriptions, dental and vision care, and more. An HSA is paired with a high-deductible health plan (HDHP), which has lower premiums but higher out-of-pocket costs than traditional health plans.
Offering an HSA to your employees can have many benefits for both you and them, such as:
- Saving money on taxes: Both you and your employees can deduct your contributions to the HSA from your taxable income, reducing your tax liability. Additionally, the withdrawals from the HSA are tax-free as long as they are used for qualified medical expenses. The earnings in the HSA also grow tax-free over time.
- Providing flexibility and choice: Your employees can decide how much they want to contribute to their HSA, up to the IRS limits, which are $3,650 for single coverage and $7,300 for family coverage in 2022. They can also choose how and when to use their HSA funds, as there is no deadline or expiration date for spending them. They can even save them for future health care costs or retirement.
- Encouraging health care consumerism: Your employees can shop around for the best value and quality of health care services and providers, as they have more control and responsibility over their health care spending and choices. This can help them lower their healthcare costs and improve their health outcomes.
How to Set Up an HSA for Your Employees
If you want to offer an HSA to your employees, here are some steps you need to take:
- Choose an HDHP that is compatible with an HSA: You need to offer a health plan that meets the IRS criteria for an HDHP, which are a minimum deductible of $1,400 for single coverage and $2,800 for family coverage, and a maximum out-of-pocket limit of $7,050 for single coverage and $14,100 for family coverage in 2022.
- Select an HSA provider: You need to find a financial institution or a third-party administrator that can set up and manage the HSAs for your employees. You can compare different HSA providers based on their fees, features, investment options, customer service, and online tools.
- Communicate the benefits of an HSA to your employees: You need to educate your employees about how an HSA works and what are the advantages of enrolling in one. You can use various methods, such as brochures, webinars, videos, or online calculators, to explain the benefits of an HSA and answer any questions they may have.
- Make contributions to your employees’ HSAs: You can choose to make contributions to your employees’ HSAs on their behalf, either as a fixed amount or a percentage of their salary. You can also match some or all of their contributions, up to a certain limit. You can vary the contribution amounts based on different classes of employees, such as full-time or part-time. However, you need to make sure that the total contributions from both you and your employees do not exceed the IRS limits.
Conclusion
An HSA is a great way to offer health benefits to your employees without spending too much on health insurance premiums. It can help you save money on taxes, provide flexibility and choice to your employees, and encourage healthcare consumerism. To learn more about how an HSA can benefit your business, contact Vesta Employee Benefit Solutions today.