Health Savings Accounts and their Triple-Tax Advantages
With healthcare costs on the rise, many employers seek creative funding arrangements to curb costs while also offering functional health insurance. A productive solution could be to incorporate Health Savings Accounts, a lower cost health insurance option with triple-tax advantages.
- HSA contributions are tax deductible.
- Contributions to HSA accounts compound tax free.
- HSA withdrawals are tax-free when used for qualified medical expenses.
(Note: if you use HSA funds to pay for unqualified medical expenses, the tax penalty is 20 percent. If you are 65 or older, you can use funds for whatever you want, but withdrawals are subject to regular income tax.)
One perceived downside to HSAs is that they are normally combined with what is a high deductible health plan. While it is true that HSA plans correspond with a high deductible, data shows Americans utilizing HSAs see increased balances from beginning of year to end. More than 75 percent withdrew less money than contributed, and 24 percent did not touch HSA monies at all. In other words, if the same Americans were instead enrolled in a higher premium, lower deductible plan, they would not be utilizing the additional purchased insurance, thus lining the pockets of insurance carriers and not receiving benefits of additional purchased insurance. 1
As of June 30, 2016, Americans had opened 18.2 million HSAs, which is a 25 percent increase from 2015, according to Devenir consulting firm. The total assets accounted for in these accounts as of that same date were approximately $34.7 billion.
While HSAs have been popular amongst those enrolled, the accounts have struggled to catch on as many employers do not yet offer the benefits to employees. A 2016 Gallagher study found 31 percent of employers offer HSA-compatible health plans, but 15 percent more companies are likely to adopt CDHP’s by 2018.
Michael Trilli, senior consultant at Aite Group, predicts the advent of government subsidies, similar to those provided by employers, to encourage consumers to put aside their own funds to HSAs.
A well-versed health insurance strategist can help place your firm in a cost-effective, rich benefit plan.
HSAs are an expenditure option that should not be overlooked by any company. The long term benefits far outweigh the short term costs. An HSA is a perfect investment because it is not taxed on the front nor the back end… forfeiting this investment could cost employees a lot of money in the long run.