Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are an attractive part of a benefit package. HSAs and FSAs are tax-advantaged accounts that can be used to pay for qualified medical costs and other healthcare expenses. Employers and employees contribute to the accounts and then those funds are available to pay for qualified expenses using a check or debit card. Such accounts can also meet the requirements of the Affordable Care Act (ACA), and as an added benefit, employees can even earn interest on their unspent HSA funds.
Strategic Healthcare and Advantages of an HSA
One strategy for providing health insurance benefits is to begin with a high-deductible policy at a low, fixed cost to cover your employees for unexpected and catastrophic medical expenses. Then, by adding an HSA, you can help them budget for more predictable healthcare expenses. Benefit highlights of HSAs include:
1. Qualified healthcare costs are paid by tax-free dollars.
2. HSA dollars can be spent on vision, dental, prescription drugs, and some over-the-counter medical supplies, as well as medical expenses like deductibles and maximum out-of-pocket.
3. Contributions to an HSA account are sheltered from federal income tax. The 2017 amounts account holders can save are $3,400 for individual (up from 2016’s limit of $3,350) and $6,750 for family. Those account holders age 55 or older (and not on Medicare) can save an additional $1,000.
4. HSAs provide a saving method for medical expenses. Amounts roll over year after year, if not used, and even accumulate interest over time. After age 65, funds can be withdrawn penalty-free for any purpose (but may be subject to income tax if not used for qualified medical expenses).
5. The funds are portable, meaning that the account holder owns the funds even if they switch jobs.
6. HSA allows contributions from sources other than employee and employer.
A cost comparison between HSAs and plans that require a copay shows that HSAs save hundreds of dollars each year for users at all levels. These savings apply to those who are just buying coverage to satisfy ACA requirements, as well as to those who require a lot of medical care. And, when you consider that HSAs earn interest, an HSA wins every time.
Don’t Forget About FSAs
Flexible Spending Accounts allow your employees to use pre-tax dollars on care for dependent children and senior citizens, as well as parking and transit expenses. A limited purpose FSA can complement those employees who also fund an HSA account; this is another way to reimburse dental and vision expenses.
With Dependent Care FSA, an employee and working spouse can both contribute to their own FSA; the household limit of $5,000 can be divided between the two at their discretion. Both the parking and transit benefits have a 2017 monthly limit of $255. These benefits can be funded by the employee and employer. For the health care FSA (whether full access or limited purpose), the 2017 salary reduction limit is $2,600. Most plans require that expenses be incurred by the last day of the plan year. But this varies by plan and an employer
can choose three endings on the medical type FSA plan year.
1. No extension of any kind. All expenses must be incurred by plan year end date.
2. Grace period of 2 ½ months can be offered in which to incur expenses.
3. Carryover of $500 unused funds can be offered to use within new year’s expenses.
Review and Update Your Benefits Package
The need to offer the best benefit plan for your employees comes down to attracting and keeping good people. It’s as important as ever in this competitive market for great talent. Call us to talk about the plans you currently offer. We can help you determine if your package is competitive, and if it’s not, we can help you improve it to attract and keep your best employees!