HSAs Offer Value—
for You and Your Employees
Escalating health care costs demand new solutions. HSA-compatible plans help change the way
people purchase and use health care today. These plans also get them thinking and saving for the
costs of health care in retirement. Plus, the financial advantages of a health savings account are
fantastic—for employees and your company.
Tax-advantaged savings vehicle
There isn’t a better deal in town. Compared to a 401(k), a Roth IRA or a traditional IRA, nothing beats an
HSA. Money isn’t taxed when it goes into the account, as it grows, or when it is withdrawn, as long as it
is used for qualified health expenses. That’s a triple-tax value for employees and their families, as well as
high-income employees and executives who may be maxing out their 401(k)s and looking for other ways to
save for the future (or reduce taxable income). HSA contributions can be deducted “above the line” on tax
returns, even if the individual is not eligible for pretax contributions.
Employees truly own the account
Unlike flexible spending accounts (FSAs) or health reimbursement arrangements (HRAs), your employees
actually own their HSAs. That’s important in the near term; the money rolls over year after year, so
employees can be thoughtful about how they spend their funds. The use-it-or-lose-it rules of an FSA can
lead to impulse purchases at the end of the plan year. Owning the account serves employees in the long run
too. Since the account is portable and stays with employees even if they change jobs, employees are more
willing to aggressively save for future expenses.
Cost containment can’t wait
Premium costs for a high-deductible health
plan can and should be substantially less than
traditional plans. As a result, many employers
pass those savings on to employees.
Payroll tax savings add up!
Employees save too. With lower premiums,
they can divert funds to an HSA for future
security, as well as save on taxes when the
funds go into the account and when the funds
come out—both on their original savings and
on any interest or investment earnings. And
when employees save their own money in an
HSA, you also save on payroll taxes.
Sample Employer Tax Savings
Sarah contributes $100 to her HSA through her
company’s Section 125 Cafeteria Plan every paycheck,
every other week.
FICA (7.65% employer FICA contribution)
$7.65
Unemployment Contribution (State)
$3.00
Unemployment Contribution (Federal)
$.80
Worker’s Compensation $2.00
Savings per pay period
$13.45
Potential Annual savings ($13.45 x 26) =
$349.70
Now, multiply that by all your employees. Your annual
company savings could be tens of thousands of dollars,
based on your participation.
High deductibles sharpen the focus on prevention, price, and quality
Even before the Affordable Care Act, most early adopters of high-deductible health plans chose to offer
preventive care for free. It makes the narrative of these new plans compassionate and logical:
The company will help you stay healthy. If you get sick, you’re going to have to shoulder
more of the cost initially. If you get really sick, the same kind of catastrophic coverage
offered by more traditional plans will shield you from major costs.
It fundamentally shifts employees’ thinking about company-sponsored health plans—from coverage that
pays for every necessary (and unnecessary) doctor visit, ER trip, lab test, and physical therapy session to
coverage that provides the flexibility and responsibility to spend money on the right health care. And it
reinforces a shared responsibility mindset, with employees taking on a larger, more proactive role in their
own health.
After decades of managed care, employees have begun to believe that a doctor visit costs $10 or having a
baby costs $100. Instead of paying a small portion of each health care bill, employees are responsible for all
costs up to the deductible with HSA-compatible plans. That’s a huge change for most employees. They’re
asking new questions, like “How much does that cost?” “What will it do?” “Is there another option?” Early
adopters have proven that high deductibles do lower health care usage and costs.1 Employees are refusing
duplicate tests and x-rays, seeking second opinions, and opting for less costly, alternative treatments.
As employers monitor these plans to ensure that HSA-compatible plans provide value for all employees,
they are paying particular attention to lower-income families. Living paycheck-to-paycheck, these
employees could be financially burdened in the event of a serious illness, subjecting them to a higher family
deductible. A strong foundation of healthy living programs becomes critical to fulfilling their promise of
quality, affordable care. Also critical is the contribution employers make to employees’ health savings
accounts. It’s more than just an enticement to enroll—it’s financial security too.
Savings for retirement will be a lifeline tomorrow
Medical breakthroughs have saved and extended our lives. In America, we expect great health care—which
keeps consuming a larger percentage of our budget. Retiree medical coverage is on the endangered
species list, and experts agree it will be near extinction after the state health care exchanges open.
According to a 2010 Fidelity Investments study, the average couple will need $250,000 to pay for health
care expenses during retirement, excluding nursing-home care. If employers aren’t offering retiree medical
coverage, and they don’t offer HSAs, where will the money come from to pay for our care in retirement?
HSAs offer a way for young and old of all income levels to get tax breaks for saving and spending on health
care costs. With triple tax savings, there really isn’t a better way to save. As employees begin to get into the
habit of saving, the next big push will be increasing savings so that account balances consistently grow for
the truly long term.
Go to hsa.umb.com for even more reasons why HSAs are valuable for you and your employees.
1
Rand Corporation Study (http://www.rand.org/pubs/research_briefs/RB9234/index1.html).
UMB Healthcare Services, a division of UMB Financial Corporation (NASDAQ:UMBF), delivers custodial services for health savings accounts
(HSAs) and private-label, multipurpose debit cards to insurance carriers, third-party administrators, software companies, employers and
financial institutions.
IMKIT02
© 2011 UMB Financial Corporation