9 reasons HSAs are a smart choice to help employees optimize benefits

Written by William G. (Bill) Stuart

 

Young married white couple at home reviewing paperwork together at a table in their white kitchen.

Health Savings Accounts (HSAs) are more – much more – than just a reimbursement account for current medical expenses. That’s because balances roll over and can reimburse qualified expenses at any time in the future. Plus, they offer a host of other benefits – even a retirement savings opportunity.

Highly effective companies help employees view all their benefits holistically, so workers understand how decisions in one area might affect another area. For example, employees who focus only on contributing to a retirement account may neglect coverage – such as HSAs – that can help reduce the strain of current medical expenses.

Employers can help close this gap and improve financial outcomes by presenting health and wealth as two sides of the same coin. This can enable employees to make smarter decisions across their health benefits and savings.

Here are nine reasons HSAs are a smart choice to help employees optimize their benefits:

1. HSAs are a great retirement savings opportunity

Besides retirement accounts, HSAs are an integral part of an employee’s overall savings strategy – whereby savvy owners use an HSA alongside their traditional retirement accounts to save for retirement. HSAs even offer greater tax advantages than tax-deferred or Roth retirement accounts because both contributions and distributions (for qualified expenses) are tax-free.

During the distribution phase, HSA withdrawals aren’t included in taxable income, owners aren’t required to make Required Minimum Distributions (RMDs), and withdrawals aren’t included in the income formula that sets Medicare Part B and Part D premiums and the percentage of Social Security benefits subject to federal income tax.

In addition, HSA contributions don’t count against retirement-plan contribution limits – even if the HSA owner is building a balance to reimburse qualified health-related in retirement.

2. HSAs go beyond Health Flexible Spending Account (FSA) qualified expenses

Both HSAs and Health FSAs reimburse diagnostic services and treatment for medical, dental and vision injuries, illnesses and conditions. However, a wider range of qualified expenses can be reimbursed tax-free from an HSA – and unlike an FSA, this applies to not only current, but also future expenses.

HSAs also reimburse medical premiums for unemployed workers who are collecting unemployment benefits or continuing coverage by using COBRA to pay their premiums with pre-tax funds. This is a double benefit, incorporating both tax savings and access to HSA balances during a period of reduced income.

HSAs also offer many benefits that aren’t available through a Health FSA, like the ability to participate when not employed, change elections mid-year, carry over balances, earn interest, invest balances, and bequeath a balance to an heir.

3. Matching contributions drive HSA balances

Most employers provide a matching contribution to workplace retirement plans to encourage employees to contribute more. Employers can also match HSA employee contributions – but few do.

By doing so, employers can encourage workers to stretch beyond what they might otherwise deposit in their HSA. And as employee balances grow, they’re able to pay for care promptly.

4. HSAs cover medical costs now – and later

An HSA can play a role in saving for future medical care down the road – as well as supplement short-term health expenses.

HSA owners can build balances steadily through regular pre-tax payroll deductions. They can dip into these funds when they experience an unexpected – or even planned – qualified medical, dental or vision expense.

5. HSAs can be paired with decision-support tools

Employees often don’t know how to evaluate their benefits offerings. To help them make more informed decisions – and see the value of HSAs – employers can offer a comprehensive, easy-to-use third-party decision-support tool like myHealth&Wealth that includes all benefits offered and recommends coverage options for each employee based on their unique priorities, risks and budget.

This can help shift the focus from out-of-pocket costs on the medical plan alone, so employees also consider the difference in payroll deductions and employer contributions to an HSA.

6. Health FSAs complement HSAs

Health FSAs still play an important role in employee benefits. Workers who aren’t eligible to open and fund an HSA (e.g., working seniors enrolled in Medicare or those covered on their own or a spouse’s non-HSA-qualified plan) can enjoy the same short-term tax benefits as an HSA owner.

Employers can adopt a Health FSA so all benefits-eligible employees can reimburse qualified health-related expenses tax-free from one account or the other. And add a Limited-Purpose Health FSA, which limits qualified expenses to dental and vision services, to increase savings for employees funding an HSA – allowing them to:

  • Further reduce their taxable income
  • Spend their entire election early in the year to ease cash flow
  • Preserve their HSA balance for future qualified expenses

7. Employers can provide extra support through HSA plan design

One of the concerns about HSA-qualified plans is the high financial barriers to medical services – delayed care can affect attendance, productivity, job satisfaction, and employee retention.

Employers can set medical-plan cost-sharing, employee’s pre-tax payroll deductions for premiums, and employer contributions to an HSA to help employees manage the total cost of coverage and care. Other solutions include adding and funding a Post-Deductible HRA to aid employees with high out-of-pocket costs – and making additional employer contributions to lower-compensated employees’ HSAs.

8. It’s easy to invest HSA balances

Most large HSA providers integrate an investment platform into their account, which provides an opportunity for employees to build their balances through prudent investments.

The investment menu may range from several dozen “best-in-class” mutual funds to a brokerage account that includes a comprehensive menu of publicly traded stocks, bonds, mutual funds and exchange-traded funds. In many cases, employees can choose funds and set their account to allocate future contributions to those investments.

9. HSAs go hand in hand with voluntary benefits

Given the high cost-sharing associated with HSA-qualified plans, employees may look for opportunities to shift some of that risk. Voluntary benefits – such as critical illness, hospital and accident coverage – can help offset some of employees’ financial responsibility when they receive care for an injury, illness or condition.

Interested in learning more about the role HSAs can play in improving financial outcomes and how you can sync up your workplace savings and benefits? Contact your Voya representative today.

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This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/insurance decision.

Health Account Solutions, including Health Savings Accounts, Flexible Spending Accounts, Commuter Benefits, Health Reimbursement Arrangements, and COBRA Administration offered by Voya Benefits Company, LLC (in New York, doing business as Voya BC, LLC). HSA custodial services provided by an approved HSA custodian as indicated in the applicable custodial agreement. For all other products, administration services provided in part by WEX Health, Inc.

This highlights some of the benefits of these accounts. If there is a discrepancy between this material and the plan documents, the plan documents will govern. Subject to any applicable agreements, Voya and WEX Health, Inc. reserve the right to amend or modify the services at any time.

The amount saved in taxes will vary depending on the amount set aside in the account, annual earnings, whether or not Social Security taxes are paid, the number of exemptions and deductions claimed, tax bracket and state and local tax regulations. Check with a tax advisor for information on whether your participation will affect tax savings. None of the information provided should be considered tax or legal advice.

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