As open enrollment draws closer, the pressure to make benefits decisions for your employees becomes paramount. Beyond the main choices between various carriers and levels of plans, another factor to consider is whether or not to offer an HSAs and FSAs.
As we mentioned in our previous post, approximately 90% of employees default to the benefit plan they’ve always had, despite annual changes in cost, coverage, or quality. With this in mind, it’s important as an employer to have a handle on how employees can take advantage of HSAs or FSAs, in order to educate them accordingly.
Health Savings Accounts (HSAs) are designed to help people pay for out-of-pocket medical expenses that aren’t covered by their insurance. To be eligible for HSAs, participants must have a High Deductible Health Plan (HDHP), defined as a minimum of $1,300 for individuals and $2,600 for families.
The biggest advantage to having an HSA is it allows people to use their money more productively; contributions are tax-free, which not only means their dollar goes further than a post-tax dollar, but it also lowers their taxable income at the end of the year.
There are limits to how much you can contribute any given year (in 2016, this limit is $3,350 for individuals and $6,750 for families, with a $1,000 catch-up contribution for people between the ages of 55 and 65). Any unused balance is rolled over into the next year. Another excellent advantage to an HSA plan is that it can be invested in stocks and bonds (for this reason, many people use it as another retirement account).
An employee is able to withdraw money from the account for nonmedical expenses, but this will incur a 10% penalty. Finally, if your employee is terminated for any reason, the HSA plan is 100% employee-owned, so it follows them even after they move on to another job.
Flexible Spending Accounts (FSAs) offer the same tax-free benefits to employees, but with a few differences. This kind of account is helpful for employees if your healthcare plans are not high deductible, as there is no HDHP eligibility requirement like HSAs.
An FSA is an employer-owned account. Employees choose how much they want to contribute during open enrollment and must stick to that amount (unlike HSAs; the contributions for which can be adjusted at any time). Contributions are still pre-tax, but are limited to $2,550.
An important detail to educate your employees on is the fact that unused contributions over $500 do not roll over into the new year. This use-it-or-lose-it element means that they must carefully estimate how much they’ll need to cover any deductible, medication costs, doctor visits and surgeries, all at the beginning of the year.
Finally, because these are employer-owned accounts, the employee loses any unused contributions if they leave.
It depends. HSAs offer the least amount of management effort for an employer, as well as the highest limits for the employees should they need to put their pre-tax dollars to hard work. But if you don’t offer a HDHP for your employees, they won’t be eligible, which is when an FSA account would be favorable.
FSA accounts require more management on the part of the employer, but since employees lose out on any money over $500 they don’t use, that money goes back to the employer at the end of the year. Per Internal Revenue regulations, this money can be used in two possible ways: either they can use it to cover benefits administration fees, or they can divide it evenly between eligible employees.
Do you have to have an HSA or FSA set up for your employees? No, it’s not required. But it is a competitive and advantageous benefit perk to offer. It provides a little bit more peace of mind to your employees, helping them better manage any medical expenses. This means better chances of staying healthy and maintaining high productivity in the workplace.
Setting up HSAs or FSAs for your employees doesn’t have to be a headache. Get some more insight and plan for your company’s future by contacting us today.