HSA: The acronym that will save you and your employees big money
If only I had a nickel for each time a conversation came to a halt when someone in a social setting asked me what I did for a living...
Let’s face it. Health insurance isn’t exactly an exciting topic. (I appreciate that you readers have made it this far!) It may not be exciting, but it can be very expensive, and can be disastrous when you don’t pay it enough attention. Medical bills are the biggest cause of US bankruptcies, and insurance premiums can cost you more than your monthly mortgage payment. The market has evolved, attempting to keep premiums from climbing higher than the usual double-digit yearly increases, and now we are all facing higher deductibles and creative attempts (think “wellness plans”, etc.) at plan design.
Enter Health Savings Accounts (HSAs). HSAs were introduced over 10 years ago, as a pre-tax savings tool for participants in a qualifying high deductible health plan. These tools weren’t very popular then, in the good old days of full-coverage health plans. I remember introducing an HSA-qualified plan in 2007, and we had one lonely enrollee. As deductibles have risen over time, HSAs have gained in popularity and I’m happy to say that our HSA plan is overwhelmingly our most popular health plan at MATRIX. If you want to optimize your benefits (and who doesn’t?), humor me for a moment while I tell you why this handy tool can potentially revolutionize healthcare, or at least put some money back into your pocket.
Not to be confused with an FSA, (the HSA’s outdated and overly restrictive stepsister), HSAs are like a 401(k) for healthcare. You sign up for an HSA-eligible health plan (with a high deductible and no ‘first dollar coverage’, which means you pay for everything but preventative care until the deductible is met), and you fund your HSA to help pay for your medical (or dental, or vision) expenses. Unlike FSAs, the maximum yearly contributions are higher ($6,550 in 2014), and your balance can earn interest and/or be invested (gains aren’t subject to taxes as long as you use this for qualifying medical expenses). If you’re lucky enough to work for an employer offering an HSA, you can enjoy convenient pre-tax contributions (which can be changed at any time) in your paycheck, or you can open your own HSA account at a bank or brokerage house and claim the deduction at tax time. The money is yours to keep (this plan is not use-it-or-lose-it like the FSA) and can be taken with you if/when you leave the plan or your employer. You or any immediate family member can use the balance, even if you eventually aren’t on an HSA-qualified plan (though once you try it, I think you’ll stay).
The logic is fairly simple. You will enjoy lower premiums because HSA-eligible plans have high deductibles with no first dollar coverage (except preventative coverage – a nice bonus). You can take the savings from the lower premiums, and fund your HSA with it. When you have a claim, you swipe your debit card (which is loaded with your HSA balance) at the pharmacy/doctor and that pays for the claim…..pre-tax! If you have more money in your HSA than you do in claims cost, then that money is yours to keep. That sure beats just sending it off to the insurance company every month in the form of a premium payment. I face intimidated employees all day long who are afraid of making a jump to a high deductible. I like to highlight that the difference in cost of the non-HSA plan is more than the deductible on the HSA plan. Why pay $3,100 extra in premiums to avoid a $3,000 deductible? Think of it this way: with that kind of premium savings, each month that you don’t have $250 in healthcare spend is money in your pocket that you get to keep!
If your company doesn’t yet offer this plan, don’t hesitate to speak up and request it. Employers enjoy lower claims experience on these plans, which leads to lower premium increases from the insurer. Employees benefit from another pre-tax savings opportunity. Win-win for everyone!
If you have any questions, or just love talking about healthcare, feel free to leave a comment below or contact me at [email protected].