HSAs Gain Steam in 2016: Six Reasons Why Organizations Should Embrace HSAs
Jim Lynch, Chief Sales Officer and Head of Healthcare Product Strategy
October 14, 2015 - Benefitfocus
Herefs the stark reality: most of your employees are not financially prepared
to handle unexpected medical expenses – whether today or during retirement. A survey
by AFLAC found that 49 percent of employees have less than $1,000 to pay for
out-of-pocket expenses associated with a serious illnesses or accident and 53
percent would have to borrow from their 401(k)s or use a credit card to cover
the costs of such events.
As an employer, youfre facing a myriad of challenges as well. The rising cost
of healthcare, an aging population and the constantly changing legislative
landscape, are all forcing you to find ways to offset increased medical costs,
while still delivering the most value to employees.
These are some of the reasons why wefve seen more and more organizations
moving to a high-deductible health plan (HDHP) paired with a Health Savings
Account (HSA). An HSA allows employees to set aside pre-tax money, through
payroll contributions, to pay for everyday health expenses, while also saving
and investing those dollars to cover future expenses. HSAs save your
organization money too. Employee contributions to HSAs reduce payroll
taxes.
Here are some of the top reasons why HSAs are becoming such a popular
addition to an organizations benefits portfolio:
- A triple threat – savings, savings and more savings: The
money employees contribute to an HSA reduces their taxable income; the
withdrawals used to pay for qualified health expenses are tax-free; and HSA
funds continue to grow tax-free – providing three big ways to save.
- A smart and easy way to manage todayfs healthcare costs:
Employees can use pre-tax dollars to pay for a wide-range of eligible
expenses, such as prescriptions, co-payments and deductibles, dental care,
orthodontia, vision care, chiropractic care and eye surgery, reducing costs by
up to 30 percent.
- To build a health nest egg: A study by Employee Benefits
Research Institute (EBRI), found that Medicare may only cover 59 percent of
employeesf healthcare expenses. Plus, a report
from the National Institute of Retirement Security found that nearly 40
million households have no retirement savings. An HSA helps employees fill the
Medicare gap and earn money while saving money, establishing a much-needed
level of financial protection.
- Low investment thresholds and solid returns: Some HSAs,
including a WageWorks HSA, allow participants to start investing funds with a
minimum account balance of $1,000. According to research
by Devenir, HSA investors are benefiting from strong returns, with an average
return of 10.6 percent on a five-year basis. For younger employees, the time
to start investing in an HSA is now because after 40 years, with a 2.5 percent
rate of return, individuals will have $360,000 in savings.
- Itfs like a 401(k) for healthcare (but better): Similar
to a 401(k), employees deposit funds into their HSA account and earn tax-free
interest and investment income year after year. But with an HSA, if the funds
are used only for qualified medical expenses, account holders never
pay taxes on the money. Itfs not a tax-deferred account like a 401(k), but
rather a tax-free account.
- Employers save too: The benefits to employers are also
significant. HSAs help support and ease the move to a HDHP, driving down
overall healthcare costs to the organization. Plus, for every dollar of HSA
funds contributed by employees, you save because payroll taxes arenft required
for those dollars contributed.
Although HSAs are gaining steam, some employees may be unfamiliar with them
and hesitant to participate. Thatfs why education and communication are
essential to encourage participation. Look for an HSA provider and partner
who can support HSA communications and education. Equally as important is a
provider who has proven compliance and security procedures, trusted banking
relationships, and multiple investment and savings options. Getting started is
easier than you think.