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February 14, 2006 HSA’s the 401-K’s of Healthcare What exactly is a Health Savings Account? The HSA is a tax advantaged savings plan available to taxpayers in the United States to deposit money to pay for current and future medical expenses. Money can be deposited to a special savings account before tax is paid on it (or deducted later from one’s gross income when income taxes are filed). The money can be used tax-free for medical expenses, chiefly one’s medical insurance deductible and co-insurance (the amount after which the insurance begins to pay, but less than the amount at which they pay 100% of expenses.) It is unique in the tax code as both income tax deductible on deposit and tax-free on withdrawal for medical expenses. How do they affect employers? HSA enable workers to set aside that pretax pay and sometimes – combined with contributions from their employer, if the company chooses to contribute- to pay for certain health care costs. Although both employees and employers may make deposits to a HSA account, the total of their deposits may not exceed that allowed by federal law. Employers may deposit as much or as little as they wish to an employee’s account, but they may not discriminate in any way when making deposits. Employer contributions must be in the same dollar amount or same percentage of the employee’s deductible for all employees in the same class. Employers can distinguish between full time vs. part time employees and/or family vs. single coverage, but no other criteria of discrimination in determining contributions are allowed. Even if employers do contribute the employer’s total cost for each employee is an HSA is generally lower than for a worker in a traditional health plan. *See Chart*
How Do They Save You (The Employer) Money? First and foremost the accounts are generating savings for companies that adopt them and they could hasten a shift of health-care costs from companies to the employees. The growing acceptance of HSA’s accelerates a transition in health care benefits, from employers providing a safety net to employees taking on more risk. HSA’s are poised to become the “401(k)s of healthcare”: a low cost substitute for a once standard workplace provided benefit. Supporters say HSA’s will help rein in health costs because employees will be more careful about how they spend their money. Plus even if employers don’t contribute a cent to their employee’s accounts they still get tax benefits. And the more of their own pay employees set aside each year, the bigger their employers’ tax breaks become. That’s because employers ordinarily have to pay a variety of payroll taxes on cash income their employees earn; these taxes fund Social Security, Medicare and state and federal unemployment programs. But under some HSA arrangements, employers can skip most of those taxes on employee contributions to the account bringing the employer savings as much as 7% to 10%. Employees also enjoy payroll-tax savings which helps make the accounts more attractive to them. Many employers see this trend of adopting HSA’s as simply reflecting the changing nature of the employment relationship. However as James Klein, president of the American Benefits Council says “It’s a positive trend in our view- not a cure all, but it’s something that ought to be encouraged”. The more dramatic savings as reflected in the chart is the ability to raise the deductible for the health plan because the HSA covers the deductible. The above chart shows the savings of high deductibles linked to HSA’s versus all other plans. HSA LIKE THE 401K IS A WIN WIN To Unsubscribe
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