Health Savings Account

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What is an HSA?

As plan premiums and deductibles continue to rise on standard employer health plans, many employers are turning to Health Savings Accounts (HSAs) with high-deductible health plans (HDHPs) to help contain costs.

HSAs give employees the option to set aside pre-tax income for future qualifying medical expenses. Only employees who are enrolled in a high-deductible healthcare plan are eligible for enrollment in an HSA.

HSA funds can be used at any point in the future — not just within the plan year — making this an excellent way for employees to save for future medical costs. 

Employers may make contributions to an HSA, but this is not required. 

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How an HSA adds value to your employee benefit package

Lower Insurance Premiums

Because high deductible healthcare plans are often more cost-effective than traditional plans, offering an HSA to help offset employee costs is a great way to fill in any gaps an HDHP may create.

Tax Savings

With an HSA, employers avoid paying the 7.65% payroll tax (i.e. Medicare and Social Security tax) on the amounts employees contribute to their HSA plans.

Popularity Increasing

To control premium costs and give employees more control over their healthcare spending, many employers have moved to consumer directed health plans. The required enrollment in a qualified medical plan coupled with an HSA is becoming the new standard for our younger population. High deductible plans typically have lower premiums, saving both the employer and the employee money on health insurance.

Contributions to a HSA account is tax-free which means neither the employer or employee pays payroll tax on the HSA contributions deducted from the employees paycheck. The employee elects the HSA contribution amount to be deducted from their paycheck. The elected amount is deducted from their gross wages, before taxes are applied eliminating payroll tax and federal tax liability on the contribution amount.

Much Like an IRA

Employees may choose to save their HSA contributions and invest. Any earnings on invested HSA contributions are tax-free. The money inside of the HSA account grows tax-free and the employee decides when they want to use the funds for qualified medical expenses. This may be part of an employee’s long term financial plan.

Healthier Employees

Studies show, employees who have more control over their healthcare spending are more likely to use preventative services and seek lower prescription drug options. Employees eligible to enroll in an HRA and high deductible medical plan are responsible for a higher upfront cost for medical treatment.

Portability

A Health Savings Account follows the consumer which means all funds added to the HSA account will follow him/her to their new employer. Once the tax-free money is deposited into the health savings account, the money is available for the employee to save, spend on eligible medical expenses or invest. Consumers decide when and how to spend their HSA dollars

A HSA is owned by the employee (also known as the consumer). They choose when and how to spend their savings as long as it’s spent on eligible expenses. The purpose of the account is to help the employee save money for qualified, out-of pocket expenses such as doctor visits, dental care, prescriptions and other eligible medical expenses. Most medical expenses are a necessity therefore the employee will pay the medical expense regardless of the money being taxed or pre-taxed. You can help the employee spend less by implementing an HSA account whereby they can save the taxes on the money they spend on medical expenses.

Employer FAQ

Employees who are enrolled in a high-deductible healthcare plan may enroll and contribute to an HSA plan. 

 

Employers also have the option of making a contribution to their employees' HSA, though this is not required.

HSAs are only available for employees who are currently enrolled in a high-deductible healthcare plan.

Unlike FSAs, unused HSA funds remain in the employee's account for future use. These funds are not available for employer use. 

There are thousands of eligible items, including:

  • Copays, coinsurance, insurance premiums
    Doctor visits and surgeries
  • Over-the-counter medications (first-aid, allergy, asthma, cold/flu, heartburn, etc.)
  • Prescription drugs
    Birthing and Lamaze classes
  • Dental and orthodontia
  • Vision expenses, such as frames, contacts, prescription sunglasses, etc.

Learn more by viewing the Eligible Expenses List.

Learn more by viewing the Eligible Expenses List.

Employee and employer contributions are tax-free (contribute pre-tax through payroll or deduct at tax time), investments grow tax-free, and you can take out tax-free funds at any time to pay for or reimburse eligible out-of-pocket healthcare expenses.

HSAs are not “use-it-or-lose-it” accounts. Unlike flexible spending accounts (FSAs), unused HSA dollars roll over every year and continue to grow tax-free.

The HSA belongs to the employee, including employer contributions, even if they terminate employment. Think of your HSA as a personal savings account. Any unspent money in the HSA remains the employees, allowing them to grow the balance over time. When they reach age 65, they can withdraw money (without penalty) and use it for anything, including non-healthcare expenses.

An HSA is a benefit that allows employees to choose how much of their paycheck they’d like to set aside, before taxes are taken out, for healthcare expenses or use as a retirement savings tool.

The IRS sets the maximum dollar amount employees can elect and contribute to a Health Savings Account (HSA).

The 2021 annual contribution limit is:

  • Single coverage - $3,600
  • Family coverage - $7,200

Please note: If the employee is 55 years of age or older, they are eligible to make an annual catch-up contribution, which lets them contribute an additional $1,000 on top of the annual contribution limits.

Employee must be enrolled in a High-Deductible Health Plan (HDHP) in order to enroll in the HSA. Employees aren’t eligible for an HSA if:

  • They’re claimed as a dependent on someone else’s taxes.
  • They’re covered by another plan that conflicts with the HDHP, such as Medicare, a Medical Flexible Spending Account (FSA) or select Health Reimbursement Arrangements.
  • The employee or their spouse is contributing to a Medical FSA.

HSA funds are available to spend, save or invest after they’ve been deducted from the employees paycheck and contributed to their HSA. Employees can adjust your payroll deductions or contributions at any time, no questions asked

The HSA is your privately owned savings account. Funds roll over year to year. And if they change employers, the HSA stays with them. There is also no requirement to submit receipts or substantiation for qualified purchases.

Ready to offer your employees an HSA plan?

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