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| Trim Your Health Insurance Costs |
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The cost of providing health care to employees has risen 13% per year for the last five years. Enter a new benefit program called the Health Savings Account (HSA), passed as part of last year’s Medicare legislation. Like a 401(k) for health care expenses, these plans transfer some cost-management responsibility to employees but allow them to keep unused balances. 73% of small business owners find the concept appealing.
As medical insurance premiums skyrocket, more companies are looking for ways to cut those expenses. For some, it means having the workers share more in the decisions and cost affecting their health care. Enter the new tax-free health savings accounts (HSAs) aimed at doing for health care what individual retirement accounts have done for retirement savings. HSAs are part of the recent Medicare reform bill passed by Congress.
To workers, the advantage is that HSAs allow them to set aside pretax money to cover medical expenses, including co-pays and prescription-drug costs that are not covered by their insurance policies. The disadvantage is that they must be linked to high-deductible policies — a minimum $1,000 a year for singles and $2,000 for families.
It’s commonly believed that this strategy will reduce a participant's overall health care costs without adversely affecting the participant's health. HSAs create a tax incentive to save for future healthcare expenses and decrease dependency on health insurance. The intent is to shift some small health care spending decisions to the cost-conscious individual consumer level.
Companies are seeing reduced visits to physicians' offices and changes in patterns, like using generics over brand names in drugs. In cases where companies fund the HSAs, the hope is that employees would look at that $1,000 in their account and manage it as if it was their own money. Independent studies have consistently shown that people covered with high deductible health insurance plans spend less on their health care with no measurable adverse effect on their long-term health.
With that in mind, the government has tried to make the new HSAs attractive for workers. Plans can be funded with pretax income of up to $2,600 for an individual and $5,150 for a family, and the money can be withdrawn tax-free for medical care as well as prescription and nonprescription drugs. Employers can contribute to the HSAs on behalf of their workers, too.
Unlike the flexible spending accounts that require employees to forfeit unused money at year's end, any unused balances in HSAs can be carried over from year to year. Surpluses even can be carried into retirement and used to pay for long-term care insurance, some Medicaid expenses and other approved medical costs.
The accounts have become popular with small businesses that can't afford high-priced insurance plans for their workers. That's because high-deductible policies generally cost less than those with more-comprehensive coverage, and HSAs are attractive because of the tax break.
Contact Beanstalk at mail@beanstalkcfo.com if you’d like more information about how Health Savings Accounts can save you money.
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