With all of the recent media hype regarding federal health insurance reform and the state of the health insurance industry, I’m sure by now you have heard the term HSA. You may be wondering: What does this mean? How does it apply to me as a business owner? Let me explain. HSA stands for Health Savings Account. It is a form of consumer directed health coverage which pairs a high-deductible health plan with a tax-free savings account for medical expenses. These plans are designed to reduce healthcare insurance costs for employers and employees alike.
Healthcare cost squeeze on businesses Since most first dollar expenses are paid by a third party (insurance companies), medical expenses have soared, and with the cost of employee benefits rising, small businesses are being squeezed to find new ways of reducing healthcare contributions. An HSA offers a new, viable alternative. It is meant to get consumers more involved in their healthcare decisions. By allowing them to shop their healthcare, Health Savings Accounts encourage competition among providers and lead to lower costs. It is believed that individual consumers are better able to decide how and where to spend their healthcare dollars than are insurance companies, and that people who buy medical services using their personal HSA funds will shop around for the best value for their dollars, and health care providers will feel pressure to charge competitive rates to attract patients. Because group insurance rates can be to three times as expensive as individual plans, an alternate option for most small businesses is to let the employees sign up for individual coverage rather than group coverage.
These are the main advantages of this strategy:
- Individual plans are 100% portable, meaning that they are not tied to the employer’s business. The employees can take the coverage with them, wherever they go, as well as deal with the grunt work involved, thus removing it off of your plate and allowing you to concentrate on running your business.
- Because HSA plans are individually under written, they are much less expensive, which helps your bottom line if you are footing all or some of the bill.
- Contributions are not considered gross income; they are tax-free. So both the employer and employee receive tax benefits from this arrangement.
- HSA accounts qualify for year to year “rollovers,” which enable the employee to create a sizeable health insurance cushion.
- Saving for the Future:
Proponents of HSAs believe that it is an important reform that will help reduce the growth of health care costs and increase the efficiency of the health care system. They contend that HSAs encourage savings for future health care expenses, allow the patient to receive needed care without a gatekeeper to determine what benefits are allowed, and make consumers more responsible for their own health care choices through the required high deductible health plan options which they will choose. Funds in an HSA account can be used to meet your deductible as well as other non-covered legitimate medical expenses including vision and dental expenses. Funds in an HSA can be used for any family member’s eligible medical expenses even though HSA accounts are individual accounts. The end result is that you may be able to cut your costs in half, while providing your employees with better coverage. Small businesses need a solution to health insurance that will enable them to retain their valued employees while maximizing profits. Health Savings Accounts may be the solution you and your business need. Like any health care option, health savings accounts have advantages and disadvantages. When considering a health savings account, think about your anticipated health care expenses, your financial situation and how much control you want over your health care spending. If you’re generally healthy and want to save for future health care expenses, an HSA may be an attractive choice. On the other hand, if you anticipate needing expensive medical care in the next year and would find it hard to meet a high deductible, an HSA might not be your best option. Therefore you will need to determine what works best for you.Final Thought: At the end of the day, it’s really important to make sure you have health coverage in place for a financial back stop. Remember, it’s all about Financial Independence. Planning for that day when the sky falls. It would be Like any health care option, health savings accounts have advantages and disadvantages.