Everyone is unique, and the same can be said for their health care needs. There isn’t a one-size-fits-all when it comes to health insurance coverage. More and more Americans are switching to a high deductible health plan (HDHP) as an effective way to maximize their health care dollars. There are several advantages to offering an HDHP with a health savings account (HSA) for both the employer and employee. Having an HDHP in combination with an HSA can help offset the cost of health care. Here are all the highlights of an HDHP with an HSA.
What are HDHPs and HSAs?
The name itself might sound a bit self-explanatory, high deductible health plan, but there is a lot more to it. HDHPs do have higher deductibles and a high out-of-pocket maximum than a standard medical plan but while having a significantly lower monthly premium. An HDHP will still cover preventative care for no cost as long as it is in-network. For care that isn’t considered preventative, that is when you pay towards your deductible. Health plans begin paying for eligible medical expenses after the deductible has been met.
The minimum deductibles for HDHPs are established by the IRS. For 2021, these limits are $1,400 for self-only coverage and $2,800 for family coverage. For 2022, these limits will remain the same.
HSAs are exclusively available to people enrolled in an HSA-compliant HDHP. The account holder and the employer can both make contributions to an HSA. No taxes are deducted from money placed into the account, as the HSA contribution is withdrawn from a paycheck before taxes are assessed. While in the savings account, the money can earn interest. The employee is free to spend that money on qualified medical expenses.
HSAs allow the employee to build their account balance as high as they wish in perpetuity. Except for the cap on total contributions per year, there are no limits on how much money can be in the HSA and how long it remains open.
The total amount that can be placed in an HSA per year is capped by the IRS. For 2021, these limits are $3,600 for self-only coverage and $7,200 for family coverage. For 2022, these limits will increase to $3,650 and $7,300. Account-holders over 55 years of age may contribute an extra $1,000 of those totals.
Pros to HDHPs with HSAs
Having an HDHP combined with an HSA can help your company save on health insurance premiums without sacrificing quality on employee coverage. HDHPs are typically more cost-effective than standard health plans. Two of the major advantages and reasons why more people are switching to HDHPs are the exponentially lower monthly premiums and the tax benefits for both employers and employees.
Employer benefits to offering HDHPs:
- Lower annual premium increases. Employees are able to take more ownership of their health care, which can result in lower increases in annual premiums for employers.
- Tax savings. When employees contribute to their HSAs pre-tax, the IRS doesn’t consider those contributions as wages. Which means the employer doesn’t have to pay FICA taxes on them. Employers can save on payroll taxes.
- HSAs. These health savings accounts are only available to qualified HDHP. Offering a qualified HDHP allows employers to provide an HSA.
- Improved benefits package. Offering an HDHP with an HSA can help save your employees money on their health care needs while enhancing the benefits package. Having a well-rounded and valuable benefits package and offering more healthcare options will keep employee retention high.
Employee benefits to having HDHPs:
- Lower monthly premiums. Paying a significantly lower amount each month for insurance premiums is one of the main reasons why HDHPs are an attractive choice.
- HSA eligibility. HSAs can be used for approved medical expenses as well as paying towards the deductible. Using HSA funds can help alleviate some of the high out-of-pocket expenses associated with HDHPs.
- While an employee’s insurance coverage typically depends on the status of their employment, that’s not the case with HSAs. Employees can take the account and any employer contributions with them if they leave their place of employment.
- HSA funds can be used towards care for yourself or any eligible dependents; spouses, children, qualified relatives.
- Free preventative care. With an HDHP, approved preventive care is covered. Here is a list of what is considered preventive. Employees can save overall on health care coverage by essentially only paying for what they need and actually use.
HSA funds can cover a multitude of products and services. As mentioned above, the funds can be used towards your deductible. The IRS determines what expenses are considered qualified with an HSA. Here are a few HSA-approved expenses:
- Flu shot
- Fertility treatments
- Prescription drugs
- Menstrual care products
- Hearing aids
- Dental treatments
- Chiropractic care
- Wheelchair, walker, crutches, and canes
- Over-the-counter medicines: cold medicine, pain relievers, stomach remedies, etc.
- Breast pump and related supplies
- Eye exams, glasses, contact lenses
HSA eligible items are subject to change depending on regulations. Here is a detailed explanation of qualified medical expenses. Using any HSA funds on any unqualified medical expenses can result in being subjected to a 20% penalty.
Choose the Best Plan For Your Business
Offering HDHPs means employers can provide health care plans at a lower cost to their employees without sacrificing the quality of care. Standard health care plans are not suitable for everyone, and HDHPs provide an alternative option to traditional health coverage. Employees will be getting high-value coverage at a lower cost.
HDHPs are a great way for employees to avoid paying for unnecessary coverage and HSAs are an excellent tool for stockpiling tax-free monies to use on future health care needs. For those who use little to no medical care during the year, this type of plan is advantageous as employees can save hundreds of dollars that would otherwise go towards unnecessary and unused health care coverage. HDHPs are a perfect fit for younger employees who don’t require frequent doctor visits. And combining HSAs with HDHPs can help balance the added out-of-pocket expenses.
Alltrust is here to ensure you get the best possible plan for your business and employees. Contact us today to see if HDHPs are a good fit for you.