04 Jul 3 things you should be telling employees about HSAs
HSAs can seem to be complicated but can save your employees an additional 20 percent on average compared to paying out of their pockets. Here are 3 tips for an employer to keep in mind about HSAs.
Everyone wants to spend less on health care, but many employees don’t realize that an HDHP plan with an HSA might be the best deal they can get. Some people get scared off by an HDHP’s big deductible, some are accustomed to FSAs, and some just think an HSA seems too complicated.
But using an HSA to pay for health expenses can save your employees an additional 20 percent on average compared to paying out of their pocket. HSAs give them a way to pay for current and future medical expenses, and every dollar they save in their HSA saves you money on payroll taxes.
Here are three things you should be communicating about your HSAs:
1. FSAs are rubber, HSAs are glue
Many employees familiar with FSAs will expect that all health care accounts follow the “use it or lose it” rule. To them, saving a lot of money on health care will seem like a gamble since with an FSA, it can be better to save too little rather than way too much.
Make sure your employees understand that there’s no “use by” date on their HSA. The money they save will stick with them until they need it — this year, next year, or twenty years from now. Emphasize that the HSA is their account, and they’ll carry it with them even if they change jobs or retire. And speaking of retirement…
2. HSAs are a great way to save for retirement
Employees who understand their HSA may still only think of them as a way to cover their current medical expenses. The sobering reality is that the average couple will have over $240,000 in medical expenses during retirement. An HSA offers a great way to save for those expenses and other retirement costs.
Explain to your employees that HSA savings can be invested like a 401(k) and can grow year-after-year. An HSA actually offers better tax savings than an 401(k) when it’s used to cover medical expenses. Reassure your employees that there’s no downside to saving too much, because once they turn 65, their HSA savings can be spent on non-medical expenses, so they can use that HSA money to buy themselves those senior-discount skydiving lessons. And speaking of treating themselves…
3. You can pay yourself back with an HSA (thanks, self!)
Many employees worry that they’ll get no benefit from an HSA if they run into medical expenses before they’ve saved enough, so they choose an FSA, since their FSA annual contribution would be available immediately.
Let them know that they can use their HSA to “reimburse themselves” for any out-of-pocket money they spend on medical expenses. So if they spend $100 out-of-pocket on an X-ray in January, they can save some pre-tax money in their HSA during February, and write themselves a check for $100. Just remind them the medical expense has to be from after they opened the HSA—so setting it up right away is critical.
HSAs can save everybody money; employees just need to know how to make it work. Having a solid understanding of the benefits and flexibility of HSAs can help employees realize how easy it is to lower their taxes, cover their medical expenses, and save for the future.
Schneider, C (2 July 2018) “3 things your clients should be telling employees about HSAs” [Web Blog Post]. Retrieved from https://www.benefitspro.com/2018/07/02/3-things-your-clients-should-be-telling-employees/