The COVID-19 pandemic has impacted our lives in many ways, including the way companies communicate with their employees. Many employees do not know how to use Health Savings Accounts (HSAs) in line with their Highly Deductible Health Insurance Plans (HDHPs) and therefore do not use multiple tax saving strategies. A current survey found that one in three adults who took HDHP did not have HSA. However, of the 2/3 of people who had an HSA, most hadn’t added any money to their account in the past year. The survey identified a lack of education and health insurance literacy as two of the main reasons people fail to contribute.
In our remote workspace, it’s harder than ever to sort out and fill in the gaps in health insurance plans. Here are five tips to help you share the benefits of HSA with employees in our current environment.
Improving health literacy
Phil Mason, Executive Vice President and Chief Operating Officer for Institutional Banking and Director of Healthcare Services at UMB Bank
After completing the open enrollment, employers should focus on improving health literacy and communicating continuously. For employees currently enrolled in their HDHP, communicating the benefits on an HSA should be a top priority. Employers can do this by demonstrating their unique tax savings benefits. Unlike other accounts like a Flexible Spending Account (FSA), the money an account holder invests in an HSA doesn’t have to be used to pay for ongoing expenses. Account holders can save money on future medical expenses and use the account as a retirement vehicle. This added benefit can also be enhanced if employers provide seed capital and create communication materials that outline how employees can use the HSA.
Employers should also remind those who did not open their HSA when enrolling that they can do so at any time throughout the year as long as they continue to be covered by an HSA-qualified HDHP. It is important to note, however, that they will not be able to pay for expenses prior to setting their HSA and partial annual contribution limits may apply if they are no longer enrolled in the HSA for the following year. Make sure you communicate the benefits in everyday life. Employees today are concerned about how to afford prescriptions and other expenses. Therefore, employers should focus on explaining how HSAs can help cover these everyday medical expenses.
HSAs can save employees money
Health care costs rise and the Peter G. Peterson Foundation expects health care costs to increase an average of 5.5% per year over the next decade, from $ 3.5 trillion in 2017 to $ 6 billion in 2027. In our current environment, employees worry for their health and the health of their loved ones, including their financial health. A common misconception about HSAs is that they are only used for spending and the long-term savings benefits of enrollment are often glossed over. Employers should focus their communications on the unique savings benefits of the account.
With HSAs, employees can save specifically for the healthcare sector and are the only account that has a triple tax advantage1This means that the money goes into the account tax-free1Money earns tax-free interest and capital gains, and money is spent tax-free when used on eligible expenses. In the long term, an HSA that works with other retirement accounts can increase wealth. Look at the offer Savings and contribution calculator This can help employees see the benefits of having an HSA, including the amount they can deposit annually, how much money that account can help them save for retirement, and what value their account can have over time. Employers can also incentivize and show the value of an HSA by providing seeds or contributions.
Changes in detail coverage
The pandemic has brought about many changes in health care, and many people may not be aware that the CARES Act has expanded your HSA’s options. Employers should share these new HSA-enabled items like telehealth and other remote care services that are covered by December 31, 2021 OTC medications and menstrual care products are also covered. In contrast to the telemedicine provision, this provision has no expiration date. COVID-19 tests and treatments are also HSA-enabled. Click for a full list of HSA-eligible items Here.
Don’t forget the power of investing2
HSAs allow account holders to take control of their healthcare spending and retirement savings through investments their HSA dollars. Employers need to explain these added benefits as many are unaware. The investment options are similar to a 401 (k), and employees who put money into their HSA over a period of time can be better prepared for retirement.2
The average couple will need just below that $ 300,000 retired For healthcare costs, an HSA can be an extremely valuable tool that your employees have in their arsenal. HSAs play a key role in narrowing the income gap in retirement and can serve as long-term savings. If after 30 years an individual saves $ 3,000 a year on a 5% return, they could potentially have $ 213,743 tax-free dollars to spend when they need it.
NOTE: This example is a hypothetical representation of return over time and is not intended to represent a specific investment or saving vehicle. The returns are constant nominal rates that are calculated monthly. Actual investments vary in value. Contributions are expected to be made at the beginning of the month. Taxes or other applicable deductions that reduce the return are not taken into account.
HSAs can improve retirement savings
Once an account holder retires, HSAs can offer several additional benefits, including bridging the gap for Medicare. HSAs can pay employer-sponsored plans under COBRA and pay premiums if an employee retires before age 65 and needs medical care prior to joining Medicare. They can also be used for Medicare rewards and help cover additional costs. After 65 years, the account holder can use an HSA to pay unqualified medical expenses with no penalty. However, these expenses are subject to income tax.
Employers should take the time to train their workforce and make it easier for workers to adjust contributions to both HSAs and traditional retirement accounts. Use a variety of platforms and content to show your employees the benefits of this account. Understanding how beneficial HSAs can be will benefit your business in the long run, too, as HDHPs with an HSA can save both employees and employers money.
UMB has a training course for further information HSA virtual resources page You can share with your co-workers.
1 All mentions of taxes refer to the federal tax law. States can choose whether to follow federal tax treatment guidelines for HSAs or to set up their own. Some states tax HSA contributions. Please check with state tax laws about the tax treatment of HSA contributions or contact your tax advisor. Neither UMB Bank na nor its parent company, subsidiaries or affiliated companies provide tax or legal advice. Withdrawals for unqualified expenses are subject to income tax and a possible additional penalty of 20% if you are under 65.
Phil Mason is Executive Vice President and Chief Operating Officer for Institutional Banking and Director Healthcare Services at UMB Bank.