Is an HSA right for your company?
Next to payroll, health insurance is typically the No. 1 cost driver for New Hampshire businesses. Over the past few years, this has become an issue for businesses of all sizes, but it particularly affects small businesses which represent the overwhelming majority of employers in our state. When assessing the type of health plan coverage they offer employees, companies are faced with questions on how they can continue to provide adequate coverage, while maintaining reasonable costs. Locally and nationally there is a growing trend toward employers choosing health savings accounts, or HSAs, over traditional health plans. While an HSA can sometimes help reduce costs, it’s important that small employers and the employees who often influence which type of plan their company chooses recognize that choosing a health plan is not always a one-size-fits-all proposition. High-deductible health plans and the HSAs that accompany them are also known as consumer-driven benefit plans. They have significantly higher deductibles, coupled with tax advantages. Once the high deductible is reached, the plan designs may resemble traditional HMO or PPO products, but at a lower price. For many employers one of the benefits an HSA offers is the potential for cost savings on annual health plan premiums and federal tax advantages if the employer chooses to fund the HSAs for their employees. The plan design also encourages employees and their dependents to be more cost conscious when making health-care decisions. From an employee perspective, an HSA can be a good choice because it is less costly and because his or her employer is contributing money into an HSA that the employee controls. An HSA is a tax-advantaged bank account owned by the employee, holding funds that can be used to pay for future medical expenses, opened in conjunction with enrollment in a federally qualified high-deductible health plan. Contributions and distributions from the HSA account are tax-free and, similar to an IRA, have limits to annual contributions and tax implications or penalties for non-conforming distributions or excessive contributions. Employees can use the cash accumulated in the HSA to pay for out-of-pocket costs related to the high-deductible plan, such as the deductibles and coinsurance, or for non-covered services such as vision and dental care expenses. And since employees own the account, the account goes with them from job to job. But because of the structure of HSA plans and their high deductibles, what may seem like a more affordable option for many companies might not be the right choice for a small employer. When considering an HSA or other types of consumer-driven benefit plans, employers should pose the following questions: • What tax implications are there? • Is the insurance program a qualified HSA insurance plan? • How can an HSA be established? • How will prescription drugs be handled under this benefit structure? If you are unsure of the answers to these questions, you’re not alone. In many instances, your insurance representative or broker adviser will be able to assist you with a design that meets both your economic and employee objectives. It’s natural that the rising cost of health care has prompted employers to seek out lower-cost health insurance options, and many companies and individuals have found an HSA to be the right choice for them. In fact, to date more than 2 million people nationally have enrolled in a high-deductible health plan with an HSA. Knowing the right questions to ask can help companies and their employees make the right decision about whether or not an HSA is right for them. Chris Henderson, New Hampshire regional administrator for MVP Health Care, has more than 20 years’ experience in health insurance, underwriting and as a small business owner.