All about a Health Savings Account (HSA)
Our Grocery and Hardware retailers ask:
“Should I consider using a Health Savings Account (HSA) plan for my employee benefits? Can it save us money?”
It’s a question we hear often at Western Grocers Trust. Here are some answers to help you determine if an HSA is right for you:
Benefits to you, the employer
We surveyed several of our employers who currently use an HSA in their benefit plans. Most offer the HSA along with a Traditional Plan. Employer contributions to the HSA savings account range from $500 - $2500 per employee. All employers surveyed are pleased with the flexibility of the plan and see it as an enhanced benefit.
1. Lower payroll taxes
The first benefit of an HSA to an employer is the tax savings. Neither you nor the employee are required to pay payroll taxes on HSA contributions and health plan payments deducted through payroll.
2. Increased employee satisfaction for retention and recruiting
Attracting and keeping good employees is becoming increasingly difficult in today’s environment. A strong benefits plan can go a long way in improving your results. An HSA can empower your employees to save on their tax bill, while simultaneously providing the means for building a medical and retirement savings nest egg. (Similar to an IRA) This could be a real employer differentiator in our industry.
3. Lower health benefits costs
HSA savings plans are required to be paired with an HSA-qualified health plan from the Trust. These plans have high minimum deductibles, and the premium rates are usually lower. Employers can use cost savings to fund employer HSA contributions at their own discretion to make the plan more attractive. Over time, the savings plans can become self-sustainable ultimately reducing health insurance costs.
Benefits to your employees
1. Lower taxable income
Employees reduce their own taxes by contributing to an HSA. Your employees can use this tax-free money to pay for their qualified medical expenses. Employers who allow payroll deductions for the HSA on a pre-tax basis give employees tax-free savings for every dollar contributed.
2. Flexible benefits
Your employees will control their medical spending by deciding when to use their Health Savings Account for medical expenses. Once the member hits the out-of-pocket maximum on their plan the insurance will pay at 100% for in network services. Many services are covered by insurance without having to meet the deductible, including well care visits and a $500 accident benefit.
3. Long-term savings option with increased compound earning potential
Earnings on invested HSA contributions are tax-free. This means the HSA works like a medical IRA or 401(k), but unlike those accounts, the funds are never taxed if they are used for qualified medical expenses. This means the HSA is a compelling option for employees to consider in their long-term retirement planning.
After age 65, employees can withdraw the funds for any reason. However, if it is not for qualified medical expenses, it will be taxed as income like a conventional IRA. HSAs are portable too, so employees can take their savings with them if they leave their employer.
This sounds too good to be true. What are the downsides?
- Employees not participating in savings contributions puts them at risk for unexpected expenses.
- High Deductible with no office visit co-pays may discourage doctor visits.
- Employers need to make contributions to employee’s savings accounts, especially at the initial implementation for these plans to be successful. While an HSA can save employers and employees insurance costs over time, it is imperative to adequately fund it up front.
- Risk of a catastrophic medical condition in the early stages of the HSA plan. With a high deductible and no co-pay benefits employees could be exposed to high costs for medical care from a serious illness if their savings bank has not accumulated enough to cover the deductible.
Note: Should the HSA not work out for the group, there is no penalty for switching back to a conventional plan during annual re-enrollment.
Still have questions?
Western Grocers Trust offers a confidential, no-obligation HSA consultation to our Grocery and Hardware family in Oregon and Washington.
Simply submit a request via our contact page, or call Tom Newton, our Benefits Consultant at 503.718.8236.