 Accounting
Best Practices
Less Taxes, More Savings for the Future
HSA’s: Less is
More. Less Premium,
By Jessica Thomas
Healthcare costs continue to escalate while insurance
carriers and consumers look for ways to reduce those
costs. High Deductible Health Plans (HDHP) combined with
Health Savings Accounts (HSA’s) is one way to decrease
healthcare costs to employers, consumers, and even to
insurance carriers. Healthy consumers as well as those
needing extensive healthcare services can often enjoy
some savings.
High Deductible plans typically have significantly
smaller premiums than traditional lower deductible plans
and contributions to an HSA, which can be used for the
deduction, are tax deductible. Unfortunately, many
consumers are afraid of the high deductible plans and
choose standard HMO and PPO plans without fully
understanding all of the benefits health savings
accounts have to offer.
HSA’s can benefit everyone
in some form. For example:
-
You are a healthy
50-year-old female who has a wellness check-up with your
primary care physician, a mammogram, routine lab work,
and a colonoscopy. Your out-of-pocket expense may be
fully covered by drawing from your HSA, and you saved
money on premiums.
-
You are in poor health and
require extensive health services. With an HDHP there is
generally 100% coverage after meeting the deductible and
funds in your HSA can be used to cover a portion, if not
all, of your deductible. Some other lower deductible
plans have a percentage-based co-payment (say, 20% of
costs up to $6,000), which could result in a higher
out-of-pocket expense.
HSA’s are triple-exempt from
taxes:
-
Contributions made to the
HSA are tax deductible. The employee can often
contribute up to the deductible amount of the plan. Any
funds not used during the year will continue to
accumulate for future healthcare use.
-
Withdrawals of funds from
the HSA that are used to pay for qualified medical
expenses are free from federal tax. The realm of
healthcare services and products that HSA funds can be
used for are vast. Dental services, over-the-counter
medications, nutritional products and many more
previously unqualified products and services can be
obtained using HSA funds that have grown over the years.
-
Interest earnings on funds
in the HSA are non-taxable.
Additionally, HSA accounts
stay with employees if they switch jobs or go into
retirement, and any remaining balance at year-end can be
carried forward to future years. This is very attractive
to people who want to save for postretirement medical
expenses and can afford to pay for current medical
expenses out-of-pocket up to the deductible amount.
Employer Benefits of HSA
Plans:
-
Employers can reduce their
premiums substantially through combining an HSA with an
HDHP.
-
Employers may contribute
money directly to employees’ HSA accounts.
-
Employer contributions to
the HSA Plan are tax deductible.
Finally, more HSAs are
offering flexible investment options for participants,
so those choosing to leave the savings in their accounts
for a longer period of time may get a greater tax
deferred (and tax free) return on their investment.
While there may be a transaction fee for transferring
funds or other fees associated with these investments,
often those costs are offset by better returns.
One issue remains difficult to swallow: the high
deductible cost in the early months of the year or
transition year. Participants may not yet have built
their HSA to the level necessary to meet an early,
unexpected medical procedure. Therefore, employers may
need to be creative to accommodate this early deductible
deficit situation. One method is to set up an employee
loan program for these costs (essentially capped at the
difference between the deductible and contributions made
as of the date of the event). The loan repayments can be
payroll deducted throughout the remainder of the year.
With some insurers, the employer doesn't even need to
come out-of-pocket for this loan, as the insurance
company will provide the mechanism to fund the
shortfalls.
In today’s economy, with the rise in healthcare costs,
both employees and employers should consider the amount
of savings, benefits and future investments that can be
attained by having a high deductible health plan with an
HSA.
Jessica Thomas is a member of the Accounting and
Auditing Services Department of Kingery & Crouse. She is
responsible for the preparation of audits for Public and
Non-Public companies. She also performs a number of
other attestation duties. Prior to joining Kingery &
Crouse she worked for 10 years in the healthcare
industry. Kingery & Crouse, P.A. is a full service
public accounting firm with a staff of dedicated
professionals providing tax and accounting services,
including audits of SEC companies. You may contact
Jessica at (813) 874-1280 ext #231. Find us on the web @
www.tampacpa.com.
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