Health Savings Accounts have the potential to save individuals and employers significant amounts of money on health-care costs, but HSAs are often overlooked or underutilized because they are shrouded in confusion.
Simply put, Health Savings Accounts are individual accounts, set up with a trustee such as a bank or other approved IRA provider, where employees can put pre-tax dollars. This money can then be taken out to pay for approved medical expenses. Plans can be set up to include both employee and employer contributions. The obvious first savings is in the pre-tax dollar contribution. Better still, these accounts are portable. Employees keep the accounts after their employment or eligibility ends and can continue to use the funds, including interest, to pay for approved medical expenses. In addition to the usual prescriptions, co-pays and crutches these funds can be accessed to pay for long-term care insurance, COBRA, and Medicare premiums. They can be a valuable means to save for future medical expenses -- and coupled with high-deductible savings plans they can end up saving both employees and employers big money on health-care expenses.
But HSAs' potential has been held back misunderstandings and myths about their benefits and how they work. Debunking the following four myths can go a long way toward maximizing the value of these accounts:
Myth #1 Anyone Can Contribute to a Health Savings Account. Health Savings Accounts are available only in partnership with High Deductible Health Plans (HDHP). The IRS currently defines an HDHP as having a minimum deductible of $1,200 for an individual and $2,400 for a family. Employees cannot contribute to a HSA if they have other medical coverage or are covered by Medicare. An employee who is covered by your health plan and a spouse's won't be eligible to make HSA contributions. The current maximum annual contribution into an HSA is now $3,050 for an individual and $6,150 for family coverage. If an employee and spouse are covered by separate HDHPs, their Health Savings Accounts total contributions cannot exceed the maximum.
Myth #2 High Deductible Plans are Only Good for the Young and Healthy. To many consumers, a High Deductible Health Plan can look really scary. The prospect of paying for the first $2,400, or more, of family health expenses is undoubtedly daunting when you are used to $40 co-pays for doctor visits. But before dismissing them as suitable only for young and healthy people who never visit a doctor, take a closer look at the plan and your medical expenses. Keeping track of employee contributions, co-pays, and out of pocket expenses will help compare the actual dollars spent. In addition, many HDHP's include in-network discounts for practitioners that can significantly lower your costs. The key to successful HDHP participation is gaining an understanding of where your health care dollars go and then figuring out your best options. Asking questions will make you a smarter consumer and help guide decisions on when to dip into the HSA or choose a different treatment.
Myth #3 Health Savings Accounts are the Same as Flexible Savings Accounts. Health Savings Accounts and Flexible Savings Accounts (FSAs) are totally different types of employee benefits with totally different goals. HSA plans are designed to encourage health care consumerism, while FSAs focus on using pretax dollars to cover expenses. Flexible Spending Accounts allow the creation of individual accounts that employees can use to pay for covered expenses. The types of reimbursable expenses are similar to those allowed by an HSA -- with some key exceptions. FSA money cannot be used to pay health insurance premiums, long-term care, or any item paid for by another health plan. In fact, an employee enrolled in an HSA cannot participate in an employer's FSA. Employers can offer FSA enrollment to individuals who are not covered by any company health plan.
Myth #4 No One Understands HSAs. These plans do require extra layers of education and communication that must be tailored to specific groups of employee. If you are offered an HSA plan option, be sure to ask as many questions as necessary to fully understand the risks and benefits, and try to compare your choices side by side on a chart or grid. If an HSA is the only choice you are offered the key to avoiding frustration is to make certain employer and employees understand how everything works before illness strikes. The key is to keep asking questions.
On Tuesday, August 9th I will be facilitating a free virtual workshop right her on HR.com 7 Keys to Ensure Understanding of High Deductible Health Plans and Health Savings Accounts. Join me and expand your knowledge of this important benefit whether you have access to or offer these plans or are considering offereing them to your employees. The more you know the better decisions you will be able to make.
Rebecca Mazin is a human resources consultant who provides employer solutions to complex HR issues. She is the author of The Employee Answer Benefits Book and the co-author of the recently revised SHRM bestseller The HR Answer Book. This post is adapted from The HR Answer Blog on AllBusiness.com where you find clear usable advice and information on a consistent basis.
