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Health Savings Accounts: A Win-Win for Employers and Employees

Alerus | OCT 02, 2017

As health care costs continue to rise, today’s employees are searching for ways to do more with their health care dollars. That means employers are searching for ways to help those employees find the right tools to accomplish their goals and stay focused on their jobs.

HSAs Are a Win-Win
Both employers and employees at companies of all sizes have discovered cost savings from pairing a high-deductible health plan, or HDHP, with a tax-advantaged HSA.  Employers and employees can both contribute to the employees’ HSA and, with the right eligible health plan, both can save money on insurance premiums. 

A Win for Employers
Employers who institute HSA-eligible health care packages can realize several benefits. Here’s how:

  • May save on health insurance premiums: By law, HSAs must be paired with HDHPs, which have higher deductibles but lower premiums than traditional HMO- or PPO-style plans. Employers can save money thanks to the lower premium.
  • Contribute to employee HSAs and save on taxes: Employers who contribute to their employees’ HSAs may be able to deduct those contributions on their corporate income tax return. Many employers use the money they save on premiums to make HSA contributions. Ask your tax advisor for more details.
  • Attract and retain employees: Adding an HSA makes your benefits offering more robust, helping you find and keep good employees.
  • Offer health benefits for the first time: Many employers haven’t offered health insurance before because of the high costs. An HSA can give you that opportunity and help employees protect themselves in the process.

A Win for Employees
Employees who participate in an HSA can enjoy many different perks, including:

  • Triple-tax savings: With an HSA, employees contribute funds pre-tax, can withdraw funds to pay for eligible medical expenses1 without paying tax, and any investment growth in the HSA is tax-free as well.2
  • No “Use-it-or-Lose-It” rule: If employees don’t use all their HSA funds by the end of the year, those funds can stay in the account. It’s unlike a Flexible Spending Account, where unused funds are lost.3
  • Help building retirement savings: Funds in an HSA can be invested* in mutual funds, where they can grow, similar to a 401(k). And, when the participant reaches age 65, he or she can withdraw HSA funds to pay for anything, even non-medical expenses, without paying a penalty.4
  • Perhaps the best part about HSAs is that the money in the account belongs to them. The HSA funds stay with them if they switch jobs, change health plans, or retire, so they keep saving or spending on health care needs as they desire.5 

An HSA Can Benefit Everyone
Now more than ever, as health care costs rise, employers and employees must work together to find cost-effective solutions. An HSA-based strategy can help all concerned by pairing tax benefits on savings with lower health insurance premiums. Plus, HSAs allow employees to grow their health savings over time – that’s a big benefit for employees, and can help a company become an employer of choice. 

Questions?
Alerus offers health savings accounts and host of related retirement and health savings options. Give us a call at 877.661.4727 or or send us an email.

 

1The IRS publishes a list of qualified medical expenses in Publication 502, available at www.irs.gov.

2HSA contributions are not taxed, funds in the HSA grow tax-free, and any withdrawals for qualified medical expenses are also tax free. Distributions taken for non-medical reasons while under the age of 65, are subject to income tax as well as a potential 20 percent excise tax. Participants may be able to claim a tax deduction for HSA contributions. Applicants and employers should consult qualified tax or legal counsel for information specific to their situation.

3The IRS modified the Use-or-Lose rule for health Flexible Spending Accounts effective for plan years beginning on or after December 28, 2012. Health FSAs may now permit a maximum of $500 remaining at the end of a plan year to be rolled over to the next year and used for qualified health expenses. Any amount above the $500 (or smaller amount dictated by the plan document) is forfeited. This is a voluntary option. Employers do not have to offer the carryover option.

4At age 65 or after, employees can use HSA funds for non-medical expenses without incurring a 20 percent excise tax. However, all withdrawals for non-medical purposes will be taxed as ordinary income.

5HSA distributions taken for non-medical expenses before age 65 are subject to ordinary income tax plus an additional 20 percent excise tax. 

* Investments are 1)Not FDIC insured 2) Not guaranteed by bank and 3) May lose value

This material is general information about health care considerations and is not intended to provide specific health care or tax advice. If you have questions about your specific situation, please contact your health care, legal, or tax advisor.

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