One of the biggest factors that help employees decide to join a workplace is the benefits that come with the job. Medical coverage is the most sought-after benefit, but with the COVID-19 pandemic and the economic situation getting more difficult with each passing day, both employers and employees alike are looking for a change in the way medical coverage is provided under a job.
Health Spending Accounts Explained
The simplest way to explain an HSA is that it is a bank account that allows employees to spend funds on eligible medical expenses. You, as an employer, would decide exactly what medical conditions are eligible under the HSA and the fixed amount that is available to each employee, depending on their experience and position in the organization.
Employees will need to stay within the amounts that have been fixed for them, and once the balance of the HSA reaches zero, there’s no further coverage for employees. Depending on what type of account you have in place, direct pay also becomes possible, which offers more convenience to employees.
As an employer you can also decide what happens in the event there is a balance left over after the end of the year. Some employers choose to have the remaining amount rolled over to the employee for use in the following year, while others require that employees forfeit the remaining amount completely, which can then be used by the employer to fund investments or cover other expenses.
HSAs have become quite popular, with many organizations offering them in addition to the medical insurance they already have in place. Regardless of what specifics you go with, HSAs can be very beneficial for a variety of reasons.
The Benefits Of Health Spending Accounts
Flexibility
HSAs offer a lot of flexibility for employees, as they can share the set amount under the HSA with their families for any medical expenses they might incur. Also, an HSA allows them to pick and choose what they spend on, allowing them to derive as much benefit as their choosing.
With HSAs, employees aren’t under the same coverage and medical condition restrictions that they would find under an insurance program. Some employees even use their HSA to make payments for deductibles.
Certainty
The biggest advantage of an HSA is the certainty it brings to organizations when it comes to the costs of medical coverage for employees. With a fixed amount being set, you would always know exactly how much it is costing your organization to keep your employees covered medically.
With insurance, yes you know what premium you have to pay, but those premium payments could become more expensive especially after claims are made. Also, you don’t know exactly how much an employee’s medical expenses will be, but if the employee has coverage, then the insurance has to pay for it with the company paying a certain percentage.
Tax Benefits
HSAs offer tax benefits as well in multiple ways. Firstly, HSAs are tax-deductible and all contributions are on a pre-tax basis. If your HSA has a saving component, then investments also grow tax-free in some cases. Finally, withdrawals can also be made on a tax-free basis, for qualified expenses only though.
With the right HSA, employers can take huge advantage of this feature, as it allows them to increase their reserves in a tax-efficient way.
Lower Costs
This is the cherry on top, especially for employers. The cost impact on employers for providing benefits is much lower with an HSA, as they would need to provide a fixed amount and nothing further. This fixed amount could be set according to the available budget of the organization and amended according to how good the organization’s balance sheet is every year.
The Disadvantages Of Health Spending Accounts
Employees Will Need To Be More Responsible
With HSAs, employers just need to make funds available and accessible for employees. It then falls on the employee to keep track of their medical expenses and be diligent in their spending.
Once the money in the HSA finishes, then the employee doesn’t have any other avenues left. So, employees need to be careful in how and where they spend the funds under their HSA.
HSAs Can Be Restrictive In Some Cases
Another disadvantage is that employers might restrict what medical conditions would be eligible under the HSA. This results in employees having to pay out of pocket for medical expenses that have no coverage.
Also, in the event an employee stays healthy and doesn’t use their funds by the end of the year, there’s no guarantee that the employee will benefit from it the following year. It could be that the money is rolled over to the next year, but the employer could also choose to have their employees forfeit the remaining amount.
They Can Benefit Employers More Than Employees
Considering the above-mentioned disadvantages, along with the fact that it is the employer who is benefiting from the reduced costs of an HSA, it’s hard for employees to not feel that the employer is benefitting more from an HSA, which causes dissatisfaction among the workforce.
Speak To A Trained Professional
If you’re still confused about whether an HSA would well within your organization, it might be helpful to speak to an expert for some financial advice. HSAs fall under the domain of financial advisors and they can advise you on all aspects of the matter.
Financial advisors and wealth management experts will be able to go into great detail and assess what form of HSA would be most beneficial for you and your employees. They can ensure that costs remain manageable, while employees have adequate coverage, and your organization can benefit from the tax relief that HSAs offer. For more information, give Eastport Financial Inc. a call at 902-474-533!
