Qualified HDHP Requirements
A Health Savings Account (HSA) is a tax-advantaged savings account for medical expenses. HSAs are not “employee benefit plans” in the way we usually think of it-any individual can open an HSA if he or she meets certain requirements.
However, HSAs offered in conjunction with an employer-sponsored health insurance plan can be a very important part of an employer’s overall benefits program. The demand for HSAs is growing as employers and individuals realize the advantages of consumer-driven health care.
A Health Savings Account is a bank account. To open and contribute to a HSA, individuals must be enrolled in a qualifying high deductible health plan (QHDHP).
The account, and the contributions made to the account, belong to the employee/account holder. Funds deposited into an HSA are not subject to federal income tax at the time of deposit. A Health Savings Account is portable, the funds can accumulate and earn interest indefinitely, and there is no employer involvement in claims or employees’ medical expenses. When the funds are spent on qualified medical expenses, the distribution is not taxed.
If you offer, or if you are considering a high deductible health plan as part of your employee benefits program, you will want to learn more about the advantages of Health Savings Accounts. Innovative Health Services partners with Avidia Bank, a specialist in HSA account services. HSA deposits are FDIC insured by Avidia Bank.
The Employer Advantage
HSAs make a high-deductible health plan much more attractive to employees. While the employer saves money on the lower premium costs for a high deductible plan, employees can set aside pre-tax dollars, through payroll deduction, in order to cover deductible expenses.
Employers may choose to contribute to employees’ accounts on a tax-favored basis, and many employers do. Contributions may be monthly, quarterly, or on another basis. Just as the account belongs to the employee, the medical expenditures from the account are strictly the responsibility of the employee. There is no substantiation or direct payment of medical expenses by the plan sponsor or the plan administrator. Individuals withdraw funds as needed to pay for their medical care expenses.
Is a HDHP/HSA a good fit for your employee population and your overall benefits program? Here are a few things to consider:To fund an HSA through payroll deductions and receive employer contributions, if applicable, your employee must be enrolled in a QHDHP that you, the employer, sponsor.
Persons enrolled in Medicare (including Part A) or in Medicaid may not open or contribute to a HSA.
An employee may not have any other health coverage. This means that employees enrolled in a spouse’s medical plan will not be eligible to open a HSA. Also, please note that Flexible Spending Plans (FSAs) are considered “other health coverage”.
If your HSA strategy includes employer contributions, keep in mind that not all employees, for the reasons above, will be eligible for that contribution.
The Employee Advantage
Employees can contribute through pre-tax payroll deductions, making it easy to save money to pay for medical expenses for themselves and their family members. They are in control of their account, and may use their funds to pay for claims as expenses are incurred. Or they can decide to save their money, let it earn tax-free interest, and grow into a nice nest egg for security against future medical expenses, even into their retirement years. They won’t lose their savings if they leave employment or no longer have access to a high deductible health plan. If an individual’s health coverage changes, they may not contribute to an HSA; however, contributions already made are not affected.
2015 HSA Contribution Limits
Catch-up Contribution for individuals age 55 or older
To Learn More…
In many respects, HSAs are benefits for grown-ups. Employer involvement is small, and no one is monitoring the degree of savings or how or when the contributions are spent. This degree of independence and lack of oversight requires a major shift in how many of us think about “employee benefits”. Employers worry that their employee won’t be able to pay their medical bills (contributions to a HSA are purely voluntary) and employees may not have the habit of savings or the discipline to budget for their medical expenses. Also, there are a number of IRS rules that govern who is eligible to own and contribute to an HSA and how much can be contributed each calendar year. These rules are not extensive or difficult to understand, but tax penalties for non-compliance fall on the individual account holder.
Innovative Health Services can provide a number of tools and resources to assist employers and employees to understand and manage HSAs. On-line enrollment, banking forms, educational materials, 24/7 access to account transactions and balances, plus the convenience of the IHSflex Debit Card and the new mobile app for smart phones; all supplement our personal and helpful customer service available every work day.
Please contact us for more information.