With the cost of healthcare increasing each year, should you be considering a High Deductible Health Plan with a Health Savings Account for your company?
A High Deductible Health Plan (“HDHP”) is a new health plan product, that when combined with a Health Savings Account (“HSA”) provides insurance coverage and a tax-advantaged way to help you and your employees save for future medical expenses. The HDHP/HSA gives you greater flexibility and discretion over how you and your employees use your health care dollars.
Who would benefit from an HDHP/HSA Plan?
If your medical expenses are generally limited to preventative care, you should definitely consider an HDHP; especially if you have the ability to make additional voluntary contributions to your HSA to accelerate the accumulation of funds for future medical expenses. However, If you have significant medical expenses that do not approach catastrophic limits, you are probably better off in a traditional plan. An HDHP plan has a higher annual deductible compared to traditional health plans. For 2006, an HDHP has a minimum annual deductible of $1,100 for single and $2,200 for family coverage. They also have maximum out-of-pocket limits of $5,000 for single and $10,000 for family.
Health Savings Accounts
An HSA account is a tax sheltered trust account that you own for purposes of paying qualified medical expenses for yourself and your family. Your HSA voluntary contributions are tax deductible. Additionally, interest earned on your HSA account is tax free. Furthermore, tax free withdrawals may be made for qualified medical expenses. Unused funds and interest left in the account at the end of the year are carried over, without limit, year to year. You own the HSA account, so all the dollars in this account are yours to keep – even when you change plans or retire. Your HSA is administered by a trustee or custodian who helps to manage the contributions and withdrawals from your account as well as manage the investments that the funds in the account are placed in.
How will the HSA save my company and employees money?
An HSA account will save you money through lower premiums, tax savings, and money deposited into your account that can be used to pay your deductibles and other out-of-pocket medical expenses in the current year and future. The funds in your HSA account can be invested in: bank accounts, annuities, certificates of deposit, stocks, bonds and mutual funds. However, your HSA custodian or trustee may offer only some of these types of investments, so you will want to understand these limitations before you choose your HSA custodian or Trustee.
What is the process for setting up an HSA?
First, you must elect a high deductible health plan. Generally, once the plan receives your company enrollment, the plan will mail you an information packet that includes banking forms for you to complete. When the plan receives the completed forms the plan will notify the administrator of the HSA (generally this is a bank). The administrator will then set up your employee accounts and your health plan will deposit pass through premiums payments into the account. Keep in mind that not all employees are required to use the same plan administrator, the employee can choose their administrator and what type of investments they will make with their contributions. Any investment allowed for IRA’s is allowed for HSA accounts.
With the cost of healthcare increasing each year, you may want to consider a High Deductible Health Plan with a Health Savings Account for your company. These HDHP/HSA accounts can lower your insurance premiums, reduce your tax bill and give you more flexibility to determine how your health care dollars are used. They can also be one additional benefit you can offer your employees!
Note: The information contained in this material represents a general overview of finance and should not be relied upon without an independent, professional analysis of how any of these provisions apply to a specific situation.
