For small business owners and HR managers, offering health insurance coverage to their employees can be said to be a given. And while it may be relatively expensive, for those companies that are considered “small businesses” under the Affordable Care Act (ACA), there are financial and tax incentives that can make it more affordable.
Affordability is also a key factor for employees.
For example, if you have a fairly small business with a lot of older employees, the premiums will tend to be higher. As one financial website noted,
“Health insurance rates rise as the policyholder gets older; the largest increases usually occur after age 55. This reflects higher expected health care costs for older Americans.
At the higher end of the age range, premiums for consumers age 64 and older are set at three times the base rate. For example, a 64-year-old pays $1,230 a month for a silver plan, which is Three times more expensive of the $410 monthly average for a 21-year-old girl.
But even for those on the lower, “more expensive” end of the monthly annuity spectrum, the costs can be difficult to manage for some younger workers.
This is why the option of a health savings account (HAS) combined with a high-deductible health plan (HDHP) is becoming increasingly popular, especially among healthy employees under 30.
A brief overview of health savings accounts
So, what is HSA?
According to anyone SourceHSA is a private bank account for eligible health care costs of your employees. Your employees can put money into HSA through payroll pre-tax deductions, deposits or transfers. As the amount increases over time, they can continue to save or spend it on eligible expenses.
An HSA allows your workers to put in and withdraw money tax-free, to use for qualified medical expenses like deductibles, co-pays, coinsurance, and more.
While the amount allowed for HAS is large, the IRS places a cap on the annual contribution. However, all unused contributions are carried over from year to year. For 2023, the IRS has increased that limit to $3,850 for self-only coverage and $7,750 for family coverage.
And if participants are 55 or older, they can contribute an additional $1,000 as a “compensation” contribution.
An employee’s eligibility to contribute to an HSA requires that your employees:
- Not be enrolled in a health plan that is not a qualifying HSA, such as a full-purpose healthcare flexible spending account (FSA)
- Not be enrolled in Medicare
- It is not claimed to be dependent on someone else’s tax return
In addition, while HSAs have a higher risk due to the higher costs of deduction than the associated HDHP, there is a potential additional benefit. This is due to the fact that HSAs can also be thought of as the only tax-exempt retirement account that is tripled. This is because the money employees put in is tax deductible, the money they take in is tax deductible, and investment gains are tax deductible.
Health savings accounts and small business owners
While an employee can create an HSA on their own, this option to provide affordable health care coverage can also be made available by employers.
Article from the Society of Human Resource Managers (SHRM) Explain How does this work,
“An employee’s HSA can be funded with contributions from the employer, the employee, or both. Employers can choose to contribute a set amount or make “matching” contributions. The IRS sets annual limits on the amounts that can be contributed to an HSA. If the HSA is funded by contributions from both the employer and the employee, it will be important to ensure that total contributions remain within the annual IRS limits.”
If you and your employees choose to have an HSA option, keep in mind that while your contributions to one of your employees’ HSAs may be excluded from the employee’s income, all employer contributions, including those made by the employee through cafeteria planshould be reported in Box 12 of the employee’s W-2.
The article also notes that in general, contributions an employer makes to an eligible employee’s HSA are excluded from the employee’s income and are not subject to federal income tax, Social Security, or Medicare taxes. As a benefit to the employer, the employer’s contributions are deducted as the company’s business expenses.
HSAs have some drawbacks
according to one investment LocationFor employees who choose HAS, there are some disadvantages:
- They will owe income taxes plus a 20 percent penalty if they withdraw money from the HSA Ineligible expenses before they reach age 65. After 65, they will owe taxes but not the penalty.
- High-deductible health plans (HDHPs), which are an HSA requirement, aren’t always the best option for employees, especially for those with significant healthcare expenses. This is why the HSA/HDHP option is usually best for younger, healthy workers.
Your local expert for small group health insurance
JC Lewis Insurance is a longtime family business of expert brokers based in Sonoma County. We only offer California health insurance plans from leading health insurance companies that are licensed to do business in California.
And we are licensed and approved by each of these insurance companies to offer coverage to small group employers, along with complementary drug plans and prescription drug plans for seniors.
If you are self-employed or are an employer that does not currently offer employee health benefits, there are many options available for your workers as well as for you and your family. So whether you’re choosing between an HMO plan, a PPO plan, or even a HAS/HDHP plan, we’ve got your back.
When you’re shopping for medical insurance for you and your family, you likely have many questions and concerns. This is great because we welcome your questions about health coverage insurance, and you can be confident that JC Lewis Insurance Services will help you find the right solution.