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Employers: Have You Considered Health Savings Accounts (HSAs) Amidst Benefits Cost Increases?

It shouldn’t be surprising that the expenses associated with providing health care benefits to employees are projected to increase in 2024. While inflation is not running rampant, it does continue to pose a persistent challenge. And as numerous industries are still grappling with shortages of skilled labor, more costly benefits are being offered to attract and retain talent.

Preliminary results from a study by global consulting firm Mercer drive home the point. Its 2023 National Survey of Employer-Sponsored Health Plans, which gathered data from 1,700 public and private employers, found that respondents expect health benefits costs to increase by an average of 5.4% next year.

There may be various incremental ways for your organization to cut its benefits costs. However, one ‘big picture’ approach that’s been popular for a while now is to offer HSAs coupled with, as required by law, a high-deductible health plan (HDHP).

Employee-Owned Accounts

HSAs operate somewhat like Flexible Spending Accounts (FSAs), which employers also can offer to eligible employees. HSAs and FSAs permit eligible employees to defer a pretax portion of their pay to later use to reimburse out-of-pocket medical expenses. However, unlike FSAs, HSAs are employee-owned accounts, so unused funds can be carried over from one year to the next indefinitely.

The most significant requirement for offering employees HSAs is that, as mentioned, you also must cover them under an HDHP. For 2024, this means each participant’s health insurance coverage must come with at least a $1,600 deductible for single coverage or $3,200 for family coverage. It’s OK if the HDHP doesn’t impose any deductible for preventive care (such as annual checkups), but participants can’t be eligible for Medicare benefits or be claimed as a dependent on another person’s tax return.

Contribution Limits

The benefit of the high deductible requirement is that premiums for HDHPs are typically less expensive than for health plans with lower deductibles. You and your employees can use some or all the savings on premiums to fund their HSAs.

Speaking of which, together, your organization and each participant can make pretax HSA contributions in 2024 of up to $4,150 for single coverage or $8,300 for family coverage. An account beneficiary who is age 55 or older by the end of the tax year for which HSA contributions are made may contribute an additional $1,000.

A couple advantageous points for employers: 1) Contributions are optional, and 2) pretax contributions to an employee’s HSA, whether by you or the participant, are exempt from Social Security, Medicare, and unemployment taxes.

A Popular Combo

Combining an HDHP with HSAs can help cut benefits costs by lowering premiums and providing tax savings. It also gives participants an account that can grow in value over time, a feature many job seekers may appreciate. Of course, all these advantages don’t automatically make HSAs the right choice for every employer. Contact us to discuss the concept further or for other ideas about better managing the costs of employee benefits.

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