what is a health savings account

What is a Health Savings Account and How Can it Benefit Your Staff?

2003 was a strange time for the United States. It was a year that gave us a lot of sad news: the invasion of Iraq, the deaths of Gregory Peck and Johnny Cash, and the explosion of the space shuttle Columbia. But, 2003 gave us a lot of happy news too. Beyoncé released her first solo album, the Chappelle’s Show premiered, and SARS was declared officially contained by the World Health Organization.

Also, in December 2003, the U.S. government established health savings accounts (HSAs) through federal law. The creation of HSAs would go on to change America’s healthcare landscape. In this article, we’ll answer the questions of what is a health savings account, what advantages do they offer employees, and how can they improve your business.

 

What is a Health Savings Account?

A health savings account is a savings account that can be used to cover eligible medical expenses in the current year or in the future. Unlike Flexible Spending Accounts (FSAs), HSAs have no deadlines and funds roll over annually. There are four federal requirements an individual must meet to be eligible for an HSA:

  1. The individual must be covered by a qualified high-deductible health plan. (A high-deductible health plan is a health insurance plan with lower monthly insurance premiums and higher deductibles than the traditional health plan.)
  2. The HSA enrollee cannot be covered by another health insurance plan, such as a spouse’s plan.
  3. The individual must be under the age of 65.
  4. The HSA enrollee cannot be claimed as a dependent on someone else’s federal income tax return.

 

What Advantages Does an HSA offer?

1. Triple Tax Advantages

The first, and arguably greatest advantage of HSAs are the triple tax benefits these accounts offer. A triple tax advantage means:

1. Contributions to HSAs aren’t taxed.

2. The balance grows tax-free.

3. The funds are available for tax-free withdrawals if used to pay for eligible healthcare expenses.

Unlike traditional retirement savings vehicles, employees can withdraw money from an HSA at any time between today and their retirement with no tax deductions, provided the funds are used to pay for healthcare.

triple taxes

 

2. Portability

The second advantage of health savings accounts is their portability. Unlike FSAs, HSAs are portable.  Being portable means the accounts travel with you even if you change employers or exit the job market permanently. This portability means employees don’t have to worry about investing in an HSA and losing it all if they have to change jobs.

 

3. Savvier Healthcare Consumers

Utilizing a health savings account helps your employees become savvier healthcare consumers. According to a 2018 study by Alegeus HSA, employees with HSAs are smarter and more engaged in healthcare decision-making than their peers.

Health savings account holders are 54 percent more confident in forecasting out-of-pocket healthcare costs. They are 46 percent more likely to research and compare costs. Additionally, they’re 37 percent more likely to seek alternatives. Plus HSA holders are 68 percent more likely to have a savings goal. Finally, HSA users are 80 percent more likely to be saving aggressively for their future healthcare savings.

 

4. Improves Financial Wellness

In 2017, one in five working-age Americans with insurance experienced problems paying medical bills. So, even with coverage, healthcare is expensive for a large portion of the country. And, every year employers are placing more and more of the cost burden on the individual consumer. This cost shift only increases the chances of medical expenses negatively affecting your workforce.

Per BenefitsPro, employees who reported some level of financial stress, find an average of 45 minutes a day at work managing their finances. Similarly, according to a 2017 Mercer survey, employers are losing up to $250 billion a year due to employees’ stress about their finances.

Mercer found approximately 5 percent of an organization’s total payroll is at risk, at any given time, from time unproductively spend worrying. But, through health savings accounts, your staff can guard against financial stress caused by excessive medical costs.

 

5. Healthier Employees

Utilizing an HSA can help your staff stay healthier throughout the year. First, having money saved in your HSA allows employees to seek treatment right away instead of delaying a doctor’s visit until they can afford it. Second, HSAs can decrease financial stress, which in turn improves physical health.

As previously discussed, financial stress can have a tremendous, negative impact on productivity, but also has a significant adverse effect on an individual’s physical health. According to a study by Northwestern Mutual, of the 85 percent of Americans who feel financial anxiety, 67 percent say this stress is negatively impacting their health.

Additionally, per the European Society of Cardiology, those with significant financial stress are 13 times more likely to suffer from a heart attack. So, if an HSA can help to relieve financial stress, these accounts can subsequently reduce the impact of this stress on your employees’ physical health.

 

Building Your Business

As you can see, via the previous section of this article, there is a multitude of ways HSAs can positively impact the lives of your employees. The cumulative effect of this positive impact helps give a boost to your business, overall.

First, the savvier your employees are as healthcare consumers, the more they can save your firm. Integrated Benefits Institute, a health research group recently reported U.S. employers spend a total of $880 billion a year on healthcare benefits for their workers and dependents. Every time an employee picks the lowest cost facility for treatment or a procedure, your company saves.

Similarly, healthier employees can save your company thousands to millions of dollars. Poor worker health costs U.S. employers $530 billion a year from lost productivity due to worker absence and impaired performance. Healthy employees can help reduce this strain on productivity caused by poor worker health.

Finally, the more financially well your staff is, the less stressed they are. An HSA can allow your employees to focus more on their job and less on their financial woes. And, the more engaged your staff is, the more productive they tend to be.

 

The Wrap

The year 2003 gave us a lot of good and a lot of bad. But health savings accounts are a clear positive for both employers and employees. Use this article to tell your employee what a health savings account is. Also, how it can help them, and your business as a whole.