No matter what type of insurance plan one has, health care expenses are nearly always surprising. Whether you are searching for a new health insurance plan for yourself or are looking for creative employee benefits ideas for the upcoming plan year, be sure to consider a health savings account (HSA) or a flexible spending account (FSA). These accounts can help individuals pay for various medical, dental, and vision expenses while assisting them in saving on taxes. Learn more about each option so that you can make the best decision for your small business.
Managing Healthcare Costs: HSAs vs. FSAs for Employees
Both HSAs and FSAs are used in conjunction with health insurance plans. However, they have a few significant differences that may make one better than the other for your employees. On the other hand, they are similar in that they can lead to substantial savings on qualified medical expenses for your employees and their family members.
Paying for medical bills is a major headache for the majority of adults living in the United States. Those with high-deductible health plans may find it especially difficult to pay for unexpected expenses. With HSAs or FSAs, your employees can have a stash of funds to help them cover out-of-pocket medical expenses that their insurance plans do not cover. Both of these options are available for small businesses to offer their employees additional benefits.
What Is an HSA?
An HSA is a health savings account that is owned by the employee. An HSA must be accompanied by a high deductible health plan (HDHP), which is currently defined as a plan with a deductible over $1,400 for an individual or $2,800 for a family.
The employer, the employee, or a combination of both individuals will contribute pre-tax money to the HSA. The individual can contribute via payroll deductions or lump sum direct deposits. When money is withdrawn for qualifying expenses, it remains tax-free. This can save up to 30% or more on the dollar.
Individuals can currently put up to $3,600 per year into an HSA or add up to $7,200 per year for a family. Those older than 55 can add an extra $1,000 per year as of January 1, 2021. This can help individuals pay for added health costs as they age until they are eligible for Medicare benefits at age 65.
One of the best things about an HSA is that the money in the account rolls over from year to year. This means that if you do not use all of the money for one year, you will still have it around to use the next year. You can also take this account with you if you change jobs. If you still have money in your HSA when you reach the age of 65, you will be able to withdraw the funds for non-medical expenses, although these funds will be subject to income tax.
What Is an FSA?
An FSA is a flexible spending account. It is only available through health care plans that employers offer and usually is given up when the employee leaves the job or retires. Similar to the HSA, FSA funds are deposited pre-tax by either the employee or the employer.
Currently, individuals can deposit up to $2,750 in an FSA each year. However, if the deposited amount is not entirely used by the end of the year, not all of the remaining funds may be rolled over the following year. Usually, not more than $500 is eligible to be rolled over. For this reason, individuals should be careful about how much they put into the FSA each year. It is wise to carefully consider possible healthcare expenses, including funds needed for hospital visits, co-pays, deductibles, and even some medical equipment and dental expenses.
HSAs, HRAs, and FSAs: What You Need to Know
Another term that you may hear mentioned occasionally is the HRA. A health reimbursement arrangement is funded solely by the employer to help employees pay for expenses not covered by health insurance. One type of HRA is specifically designed for small businesses with fewer than 50 full-time employees. Your contributions are completely tax-deductible. However, you may find that the extra paperwork is not worth the small savings for you.
People tend to shy away from HSAs and FSAs because they require individuals to put money into them upfront. This can be difficult for individuals already struggling to make ends meet or pay their insurance premiums even with the advantage of high deductible health plans. However, careful planning can ensure that you save money with either of these plans.
The good news about an FSA is that it can be combined with any health care plan rather than just with high-deductible health plans. This makes it simple for both employers and employees to use, although you may find that you have higher health care costs for your employees.
If you are younger, an HSA may be the better option for you because you most likely do not have many unexpected health expenses and probably benefit from a high-deductible health plan. Also, HSA funds can often be used to pay certain insurance premiums, while FSAs cannot be used for this purpose. An HSA may also be a good choice even for your older employees as they can treat the account as a type of savings account to be used in retirement.
Managing Healthcare Costs: HSAs vs. FSAs to Create Health Benefits
You may think that HSA and FSA funds only bring financial benefits to you and your employees. However, they can also create health benefits when used appropriately. When your employees feel that they have the funds to pay for health care, they are more apt to see their doctors when necessary, opt for recommended testing and fill their prescriptions.
This can also benefit you as an employer. When your employees are healthy and happy thanks to your health reimbursement arrangement, they are more apt to stick with your company and take fewer sick days.
The Best Option for Your Business
As an employer, you may decide to set up an HSA for your employees to motivate them to choose a less expensive high-deductible health plan. The HDHP is far more affordable for you, and you may still be able to save even if you contribute a portion to your employees’ HSAs each year.
Choosing such a benefit as an HSA or an FSA can attract new employees to your small business and can incentivize your loyal employees to stay with you for years to come. Also, your contributions to either of these plans should be tax-deductible, further helping you offset costs.
Helping Employees Meet Their Care Costs
As an employer, you have several options for helping your employees meet many of their medical, dental, and vision costs. At E-Marketing Associates, we are here to help you understand how your small business can grow and succeed. With numerous electronic marketing services, including SEO and lead generation, E-Marketing Associates is dedicated to helping you see real results in every area.