Skyrocketing costs are making it more difficult for small businesses to attract and retain skilled workers with the promise of health insurance. It is important to know the options that are available to better manage this. Don’t worry, it’s not that complicated.
Even if you have High-deductible health plans (HDHPs), there is an opportunity to couple it with a Health Savings Account (HSA) to ease the burden of meeting the deductible. This would assist both the employer and the employee…
High-Deductible Plans and HSAs
High-deductible health plans (HDHPs) are designed to drive down health care costs by placing more of the responsibility and cost burden on consumers, in effect, forcing them to be more cost conscious when deciding on medical care. Like traditional health care plans, HDHPs usually cover a wide range of medical and prescription costs — but only after a steep annual deductible has been paid. Such deductibles generally run from as low as $1,300 for individual coverage to upwards of $7,500 for family coverage, depending on the plan.
HDHPs are often used with Health Savings Accounts (HSAs) — tax-preferred savings accounts that are used to fund qualified medical expenses. Workers or their employers make tax-free contributions to an HSA, then the employees use the funds to purchase medical care until they reach their deductibles.
HSAs and Employee Eligibility
Your employees are eligible for an HSA if they meet four qualifying criteria:
- they are enrolled in a qualified HDHP
- they are not covered by another disqualifying health plan (whether insurance or an uninsured health plan)
- they are not eligible for Medicare benefits
- they are not a dependent of another person for tax purposes
The maximum contribution to an HSA for 2016 is $3,350 for employees with single coverage, or $6,750 for those with family coverage. Workers over age 55 can contribute an additional $1,000 in 2016 regardless of whether they have single or family coverage. Such contributions are made on a before-tax basis, meaning they reduce taxable income. Note that unlike IRAs and certain other tax-deferred investment vehicles, no income limits apply to HSAs.
A health reimbursement account (HRA), on the other hand, must be funded only by an employer — not by a contribution of employee income. Employees with HRAs then receive tax-free reimbursement for qualified medical expenses up to a maximum amount.
Contact us to learn more about an HSA for your benefits line-up.
1. Optum, Inc. 6th Annual Wellness in the Workplace Study, July 2015.
2. Financial Planning Association