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Health savings accounts can benefit employees, company bottom line

When the Affordable Care Act was signed into law in 2010 there was spirited debate about how it would impact businesses and their employees. Five years later, it’s fair to say the debate continues. Many people have many questions. How is it changing the way insurance companies conduct business? Will the individual and business mandates work, and are they fair? Is expanding Medicaid a good thing? How will the employer mandate affect businesses? Often, the answers to these questions are fueled by political motivations.

For business leaders who need to make important decisions, this political wrangling can prove frustrating. Fortunately, over the course of the last couple of years, real data about the impact of the ACA on employer benefits has been made available. Here are two big takeaways:

1. Companies remain strongly committed to providing health care benefits to employees. In fact, 95 percent of companies indicate that subsidizing health care coverage for active employees will be an important part of their total rewards package in the period covering 2015 and beyond.1 It’s not solely about cost. It’s about recruiting and retaining top talent.

2. Companies are reshaping how they provide and manage these benefits. They are shifting workers to a high deductible health plan with a health savings account option. According to the Kaiser Family Foundation, in 2014 20 percent of employees with employer-sponsored health care coverage were enrolled in an HSA-qualified plan. In 2006, only 4 percent of employees were enrolled in such plans.2

The explanation for this dramatic upward trend is relatively simple: Both the employer and the employee can save money. It’s a win-win.

The basics of HSAs
HSAs are special-purpose accounts used in conjunction with an HDHP. HSAs enable a business’s employees to pay for current health expenses and save for future qualified medical expenses, including retiree health expenses, on a tax-free basis.

Employees must be covered by an HDHP to be able to take advantage of HSAs. HDHPs generally cost less than traditional health care coverage because the first several thousand dollars of health care expenses (i.e., your “deductible”) are the employee’s responsibility. That is the purpose of the HSA—to help people pay for the expenses their plan does not cover.

Employees own and control the money in their HSAs. Decisions on how to spend the money are made by the employee without relying on a third party or a health insurer. They also decide what types of investments to make with the money in the account in order to make it grow.

The benefits of HSAs

For employees, HSA contributions offer an “above-the-line” tax deduction, which allows them to reduce their taxable income by the amount they contribute to their HSA. In addition:

 Deductions do not nee
 Contributions can be made to the HSA by others, including employers and relatives, and the employee will still receive the benefit of the tax deduction
 Contributions can be made on a pretax basis (i.e., before income taxes and FICA taxes)

 Withdrawals to cover qualified medical expenses are tax free

There is no “use it or lose it” penalty with an HSA, and it will continue to earn interest tax free and be accessible even if the employee changes jobs, retires or selects a different health care plan.

Employers benefit because they can realize a savings on a portion of their health insurance premiums. In addition, companies can make pre-tax contributions to their employee HSAs. (Certain comparability rules apply.) This can decrease employer payroll taxes.

Studies also show that when employees have a higher stake in their health care decisions and expenses, they modify behaviors and overall costs decrease. For example, in 2014 Aetna released a 10-year study of consumer-directed plans, such as HSAs. Their findings: employers saved $208 per member per year, and employees in these plans spent less on health care while increasing preventative care visits and participation in wellness programs. Overall, the lower health care costs resulted in savings of $12.5 million over a six-year period for every 10,000 members.3

The future of healthcare
The long-term prognosis for the ACA is unclear. However, what is recognizable to everyone—from consumers to businesses, healthcare providers and insurance companies—is that we need to control costs. HDHPs and HSAs are proving to be an effective tool for accomplishing this. While it pushes more responsibility to the employee, it also provides them with the opportunity to save money and gain greater control over their healthcare decisions.

Businesses that want to offer an HSA option to their employees should talk with their bank and/or health savings specialist. You want to make sure your provider offers a range of tools and resources to help employees fully manage and understand their benefits, as well as the experience to help you structure a plan that is good for your bottom line and good for your employees.

1 19th Annual Towers Watson/National Business Group on Health Employer Survey.

2 Kaiser Family Foundation,“2014 Employer Health Benefits Survey.”

3 10th Annual Aetna Health Fund Study.

James Barger is president of KeyBank’s Rochester Market. He may be reached at (585) 238-4121 or james_r_barger@keybank.com.

3/20/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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