The rise in health insurance cost is not slowing down.
Annual premiums for employer-sponsored family health coverage reached $16,351 in 2013, up 4 percent from 2012, according to the Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2013 Employer Health Benefits Survey. Since 2003, premiums have increased 80 percent, nearly three times as fast as wages (31 percent) and inflation (27 percent).
With health care costs continuing to rise, many small business owners are grappling with ways to provide employees with benefits while keeping costs in check. Health savings accounts coupled with high-deductible insurance plans can be one way to keep benefits costs down while still rewarding employees. This is why you are seeing an increasing number of financial institutions, such as MidWestOne, offer health savings accounts.
What is a health savings account?
Health savings accounts – or HSAs – are like a personal savings account designed specifically for deductibles or other health care expenses. Your employees own and control the money in the account, and also determine how much they want to pay into the account on a regular basis.
To be eligible to open an HSA, employees must have a high-deductible health care plan that has a minimum deductible set every year by the federal government. The 2014 minimum deductible is $1,250 for individual and $2,500 for family coverage.
As an employer you can therefore offer your employees high-deductible insurance plans – which typically have much lower premiums – along with monthly contributions into their HSA accounts. Even if you want to give employees the choice of high-deductible insurance vs. low-deductible insurance, the HSA benefit increases the likelihood that more employees will choose the high-deductible insurance since they’ll be saving money by paying less monthly premium as well.
What are the benefits of a HSA?
For your employees, there are three key tax benefits to a HSA:
- The money you pay into the account is tax deductible.
- Funds in the account grow tax-free.
- You don’t pay taxes on your withdrawals, as long as they are used for a qualified medical expense.
In addition, an HSA can help employees with retirement funding. After they turn 65, they can use money they withdraw for things other than medical expenses without incurring a penalty. They can, for example, use funds to finance living expenses.
For business owners you can get a tax benefit as well since any funds you contributed to HSAs are not taxed.
How much money can I contribute to employee accounts?
Contribution limits are set by the government on an annual basis. In 2014, the total pretax contributions are set at $3,300 a year if you have individual medical coverage, or up to $6,550 if you have family coverage. People above the age of 55 can add catch-up contributions at $1,000 per year.
If you are contributing to your employees’ accounts keep in mind that your contributions and your employees’ contribution combined cannot exceed these limits.
What to look for when selecting an HSA
Convenience is a big factor when selecting an HSA account for employees. This will make it easier to set funding limits, determine what your balance is and make withdrawals. MidWestOne’s health savings account comes with a VISA check card that can be used at the point-of-purchase or point-of-care to pay directly for medical products or services. This is far easier than filling out disbursement or reimbursement forms, which some older health savings accounts require.
In addition, MidWestOne’s HSA can be accessed through bank’s online banking and mobile banking platforms, which makes it easy for your employees to monitor your account and make adjustments when needed.
If you are looking for a way to reduce health insurance costs, consider high-deductible medical insurance coupled with a health savings account. It could turn in to a win-win for both you and your employees.