Health Savings Accounts: An Overview of Program Benefits and Guidelines
For many small employers, the cost of employee health benefit programs has skyrocketed over the last decade. Unfortunately, in many cases, the cost of providing health insurance coverage to employees is considered burdensome and often overlooked by employers due to the mere fact of affordability of premiums. In an effort to resolve the increasing number of uninsured Americans, the introduction of Health Savings Accounts (HSA), offers employers and employees and alternative to traditional health insurance plans.
Considered a savings program, Health Savings Accounts, are generally coupled with a high premium insurance plan commonly referred to as a High Deductible Health Plan or HDHP. With an HDHP, employers pay a significantly lower insurance premium and provide a catastrophic type insurance plan for employees. This catastrophic insurance plan, as it states, comes with a very high deductible and limits the benefits available to employees. To offset the deductible costs to employees, and to avoid higher premiums for lower deductible plans, employers will turn to Health Savings Accounts (HSA)s as a financial investment tool.
Often open with an initial investment by the employer, employees are permitted to invest their own money into the health savings plans. The concept being any money normally spent on insurance premiums would be invested into the Health Savings Account on a pre-tax basis with annual contributions not permitted to exceed the amount of the deductible on the HDHP. In other words, if you, or your employer, choose to purchase an HDHP with a catastrophic deductible of $2500.00, the limit you can invest into an HSA would be $2500.00 and is pro-rated based on the date coverage goes into effect for the first year. Taxable income, for income tax purposes, is then reduced by the amount of contribution made during the year. Itemization of deductions is not required to receive the tax benefit of an HSA contribution.
Utilizing a Health Savings Account is quite simple. Upon incurring medical costs, your claim should first be filed with your High Deductible Health Plan carrier. Upon receipt, the HDHP carrier will adjudicate the claim in accordance with their fee guidelines and submit an explanation of benefits (EOB) to both you and your physician. Upon receipt of the EOB, determine the amount applied to your deductible and then submit this amount to your HSA for payment. It’s that simple. In addition to the ease of HSA claims processing, the Health Savings Account interest and other earnings to the account are considered tax free. Best of all, the HSA plan is portable and can be moved from employer to employer.
