There are a variety of healthcare options available to employees today,with options dependent on the employer providing coverage. Companies looking to lower their expenses are giving workers the option to partake in consumer-driven plans, including health savings accounts and people are interested in that choice. In 2014, about 17.4 million Americans were covered by HSAs, a nearly 12 percent increase from the year before, according to America's Health Insurance Plans. These offers have many benefits for both employees and their employers. Take a look at some examples:
Tax advantages
One of the most attractive elements of HSAs are the rich tax perks associated with these plans. There are three tax advantages these offerings provide, according to U.S. News and World Report:
- Contributions are tax-deductible or pre tax if made through a payroll deduction.
- The interest earned is tax-free.
- Account owners can make tax-free withdrawals for qualified medical expenses, including prescriptions, diagnostic devices and most services provided by a licensed health provider.
These tax incentives make HSAs even more appealing for employers to offer their workers and add extra benefits for employees themselves.
Contributions to HSAs are tax deductible.Additional funds for retirement
Life can be unpredictable, but people need to be saving for retirement as early as possible. While many prepare by contributing to things like a 401(k) plan, employees could possibly max out these investments in a calendar year. To continue preserving necessary funds in a responsible way, workers can put money into their HSAs, according to Forbes. If a person's medical expenses remain low over time and they continue contributing the same amount of money over time, the balance could really add up. The funds that remain unused can be withdrawn during retirement – after age 65 or once someone is eligible for Medicare. People who take this route will still need to pay income tax on the amount, however. Withdrawing money from a HSA for non-medical expenses before an employee is 65 could result in a 20 percent tax on the withdrawal.
"The funds of HSAs will transfer with the employee."
Portability
When people switch jobs, they often worry about the differences in coverage they'll receive. As a result, they may schedule numbers of doctors' appointment prior to departing their original employer to avoid the potential of dissimilar care. With HSAs, workers can evade this worry. These plans are portable, meaning the money contained within them cannot be separated from the owner – even if they switch companies or leave the workforce altogether, according to the IRS.
Unending rollover
Unlike flexible spending accounts, HSA plans don't have a deadline for employees to use the funds by. Instead, this money will roll over from employer to employer and is available to people throughout their entire lives as long as they're also participating in a high-deductible health plan as well. While HSA money can be used throughout the duration of a lifetime, people won't be able to contribute anymore once they reach retirement age.
Contribution information for 2016
Every year, the IRS releases information related to contribution limits for HSAs and the HDHPs linked to them. For 2016, the figures are as follows:
- HSA contribution limit (employee + employer): $3,350 for an individual, $6,750 for families.
- HSA catch-up limit (age 55 or older): $1,000.
- HDHP minimum deductibles: $1,300 for an individual, $2,600 for families.
- HDHP maximum out-of-pocket deductibles: $6,550 for an individual, $13,100 for families.
HSA plans are becoming increasingly popular among employers in today's healthcare market. The option offers both companies and their employees many advantages, including tax incentives. Both parties need to understand that the perks are only applicable if a HDHP is also provided. Organizations and their human resources team should weigh their choices prior to making a decision regarding employer-provided coverage.