More About Health Savings Accounts

Benefit Management Consultants

More About Health Savings Accounts

* (Also see Pros and Cons)

The HSA lets your employees save part of their income for healthcare expenses without paying taxes on it. As an employer, you can make contributions to your workers’ accounts as an added employment benefit. Your employees get the advantage of using their tax-free savings to pay for healthcare expenses that most insurance plans won’t cover — everything from bandages to cold medicine.

Because an HSA works with a high deductible plan, you can reduce the premiums you have to pay for group coverage. And since your employees will have access to healthcare and an affordable way to pay for it, you get a healthier workforce.

Health Savings Accounts (HSA)

A Health Savings Account (HSA) is a federally approved, special savings account that enables you to pay for qualified medical expenses with money that is not taxed. HSAs are only available to those with a qualified high deductible health plan. The high deductible plan provides major medical coverage so you are protected from financial hardship due to unforeseen illness and injury - the real purpose of health coverage. The HSA allows employees and/or employers to deposit tax-free money into the HSA to cover current or future medical expenses. And what you don't use, you can save until retirement. It's your money!

HSAs receive special tax treatment.

Money deposited in an HSA account is tax-free. It earns tax-free interest and can be withdrawn tax-free to pay for qualified medical expenses. This special tax treatment makes an HSA unique. Money placed in other accounts or investments is taxed before it's deposited, upon withdrawal or at both times. Even 401k plans and IRAs don't have this special tax-favored treatment.  

In addition, HSAs:

• Allow for the accumulation of unused funds from year to year so you can pay for future medical and/or dental expenses or even save and use the money as a supplement to retirement income.

• Are owned by you, the employee; so the funds belong to you whether deposits are made by you, your employer or both.

• Go with you if you ever leave your job.

HSA Advantages For Employers

• HSAs give you an extra benefit to offer that can help you attract and keep the best employees.

• Your contributions to employees’ accounts are usually tax-deductible.

• If you have a Cafeteria Plan, your employees can make their contributions as “pre-tax” payroll deductions. That can mean you save on payroll taxes.

HSA Advantages For Your Employees

• Employees can contribute money their plan on a pre-tax basis, or claim their contributions as a deduction on their income tax return.

• Employees can earn tax-free interest on their HSA contributions.

• Withdrawals from a Health Savings Account are tax-free if they’re used for healthcare expenses.

• HSA funds roll over from year to year.