As a small business owner, you may already be offering health insurance coverage benefits to your workers. Or you may be relatively new to the employer role and have recently decided to make group coverage an option for your employees.
Either way, understanding the purpose of a health savings account and its role in the mix of small business health insurance offerings is critical.
What is an HSA and how does it affect your health insurance plans?
By definition, understanding the basic concept of health savings accounts is fairly simple and straightforward.
Website at Healthcare.gov He specifies It is also,
“A type of savings account that allows you to set aside money on a tax basis to pay for qualified medical expenses. By using the non-taxable dollars in a health savings account (HSA) to pay deductibles, copayments, coinsurance, and certain other expenses, you may be able to lower your overall health care costs.”
The Health Insurance Marketplace® further states that,
“You’re eligible to contribute to an HSA when you’re covered by certain high-deductible health plans (HDHPs). With HDHPs, the monthly premium is usually lower, but you’re paying more for health care yourself before your insurance company starts paying its share. You can’t. Contribute to an HSA if you have Medicare coverage, or a plan that pays its share of a covered service without having to pay deductibles or co-payments first (called a “First dollar coverage“)..”
Essentially, an HSA cannot be obtained on its own but must be set up in conjunction with the purchase of a high deductible health plan, or HDHP.
HDHPs are health coverage plans with much higher deductibles than traditional insurance plans. Although the monthly premium is usually less than the average a traditional plan would require, the member will pay more for health care themselves before the insurance company starts paying their share. This amount is known as the member discount.
A high-deductible plan (HDHP) can be purchased on its own, or it can be combined with a health savings account (HSA). Using an HSA allows a member to pay certain medical expenses using the funds in the HSA and without paying federal taxes on those funds.
In 2023, the IRS defined a high-deductible health plan as a health plan with an annual deductible of at least $1,500 for self-coverage only or $3,000 for family coverage. HDHP’s total annual out-of-pocket expenses (including deductibles, co-payments, and coinsurance) for 2023 are not to exceed $7,500 for self-coverage only or $15,000 for family coverage.
Including health savings accounts in your small group coverage offers
The truth is, most employees will not opt for a HAS/HDHP offering because the potential out-of-pocket costs for most workers are too high. like article In Investopedia points out,
“The main downside to an HSA is that you must have a high-deductible health insurance plan to get one. The health insurance deductible is the amount of money you have to pay out of pocket each year before your insurance plan benefits can begin.”
This means that an individual will likely have to spend upwards of $7,000 or more for the year out of their own money before any insurance coverage can commence. This amount can be up to $15,000 if the household is covered by the HDHP.
On the other hand, the money saved by the employee in the HSA is tax deductible.
In fact, employees can claim a deduction on their tax return for HSA contributions regardless of whether they itemize the deductions or not. Employees can claim a tax deduction even if someone other than their employer makes a contribution to their health insurance account. Those with HSA’s do not even pay taxes on the dividends and interest they receive from the assets held in the HSA.
Also, the money in a health savings account “rolls back” from year to year if it’s not spent.
In addition, any HSA withdrawals that are used for medical expenses are not subject to taxation. The money you contribute to the account is not taxed as long as it is used for eligible out-of-pocket medical costs, such as:
- Ambulance costs
- Doctor visits
- Hearing aids
- Prescribed medication
- Psychotherapy / psychological care
- Eligible long-term care services
- and similar expenses
In some cases, HSA participants can spend money on similar medical costs for their spouse or dependents.
Using the HDHP/HSA option as a financial strategy
While those employees who can expect routine doctor visits throughout the year, or have certain conditions that they know require costly procedures, tests, or prescriptions, would undoubtedly pass on the HDHP/HSA offer, younger employees might not.
In general, a high-deductible health plan—along with a health savings account—is a great fit for younger, healthier workers who don’t expect to need Medicare coverage except in the event of a serious health emergency.
For most employees, the main benefit of a high-deductible health plan combined with an HSA is the tax savings. In addition, there are the advantages of being able to cover some expenses not covered by the insurance plan, the ability to share the account with others, and the ease of using a health savings account to pay for health care expenses.
As Investopedia points out,
“Money is yours forever. You can let it grow in HSA. Some people use HSA as part of their retirement planning strategy.”
So where does one find health savings accounts?
HSA is usually offered by banks, insurance companies, and other financial institutions. For HDHPS, these HSA-eligible plans are generally available through the Health Insurance Marketplace®, the Small Business Health Options Program (SHOP), or “off the exchangeie outside the market.
Your local resource for small group health insurance plans
JC Lewis Insurance Services, a family business of expert brokers long standing for more than 50 years, is located in Santa Rosa. Serving the Greater Sonoma County area, we offer only California health insurance plans from leading health insurance companies 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 an employer looking to make changes in your small group coverage, or you are an employer that does not currently offer employee health benefits, there are several options available for your workers as well as for you and your family. So whether you’re deciding between an HMO plan, a PPO plan, or even an HSA/HDHP, we’ve got you covered.
When you’re shopping for medical insurance for you, your family, and your employees, we know you’re likely to have many questions and concerns. And that’s a good thing. 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.