Benefits of Health Savings Accounts

At Indiana Members Credit Union (IMCU), we want to empower you with the knowledge and resources you need to make smart decisions for your business. From our commercial lending and deposits offerings to business CDs and more, it’s our goal to provide our members with versatile and constructive solutions.

Where exactly do health savings accounts (HSAs) fit into the puzzle, though? How do they work, and who do they benefit—employees, employers, or both? (Spoiler: the answer is both!)

In this article, we’ll briefly explore how these accounts work and how they provide unique value for employees as well as their employers. Let’s start with the employee side of the equation.

Do Employees Want HSAs?

To put it bluntly, yes. As a recent MetLife study discovered, “86% of employees are interested in their employer providing an HSA”—a figure that has risen by 5% over the past two years. Surely this means an increase in employers offering these plans, right? Well, not exactly…

For Employees, What Is the Main Benefit of Using an HSA?

An HSA makes it easier for employees to better-budget their healthcare needs. Once an HSA has been established, employees can fund it with pre-tax dollars, like a retirement plan. Deductions are automatic, and employees have control over how much they want to contribute per pay. Employers can also contribute, adding to account holders’ balances. Employees can then use these funds for qualifying expenses—including things like medical care, dental, vision, prescription medications, and other health aids.

How Many Employees Currently Have Access to an HSA?

Despite being a benefit plenty of employees want, a recent study found that less than one-third (29%) of workers in the U.S. have a health savings account (HSA) provided by their employer. And that figure may be somewhat generous, as an unrelated study found this percentage to be closer to 10%.

And employers apparently aren’t trending in the right direction. In fact, MetLife’s research found that the number of employers offering an HSA has actually been decreasing. It could be that not enough employers truly understand the value these plans provide—not just for employees, but employers as well.

What Employers Need to Know: HSA FAQs

While the benefits of an HSA for the employee or account holder are plenty, it’s worth noting that they actually benefit the employer as well—and in some compelling ways.

What Are the Rules for an HSA Account?

Understanding the ins and outs of HSA spending can help employers make wise decisions regarding their benefits offerings, and communicate the value of an HSA to employees. While health savings account rules generally vary depending on the provider and plan, here’s how they generally work:

First, eligible employees opt into an HSA account as part of their benefits enrollment.
Next, they elect how much of each paycheck they want to automatically deduct, re-routing allocated pre-tax dollars toward their plan.
Once the account is funded, it can be used to pay for things like their deductibles and/or copayments, as well as other qualified medical expenses—like certain dental, vision, and prescription costs.

For more information and insight, you can review the specific eligibility factors, contribution limits, and more via the IRS’s website.

HSA vs FSA: What’s the Difference?

While both enable your employees to set money aside for qualifying medical expenses, there are distinctions worth noting between an HSA and a similar offering: flexible spending accounts, or FSAs. Investopedia describes the differences in considerable depth, pointing out that an HSA offers greater flexibility, since it…

Is owned and controlled by the employee, not the employer
Allows penalty-free withdrawals
Rolls contributions over to the next year (when applicable)

By offering employees an HSA, companies can empower their most valuable assets—their people—to make thoughtful and proactive decisions about their healthcare. HSAs also help them to better budget for their expenses, both expected and unexpected. Offering an HSA is a great way to demonstrate to employees that they work for a company that cares about their mental and physical well-being.

FSA vs HSA: Eligible Expenses

FSAs and HSAs generally cover similar types of medical and related expenses, with one difference worth noting: dependent care. HSA coverage is limited to the plan’s owner, while an FSA covers certain dependent care (such as childcare or adult dependent care).

As far as determining eligibility to have an HSA in the first place goes, employers can only offer an HSA for employees that enroll in a High Deductible Health Plan (HDHP).

What Is the Tax Advantage of an HSA Offering?

Outside of taking care of your employees, one of the most compelling reasons to offer an HSA plan comes down to the tax advantages it can provide—especially when employers also contribute.

Ultimately, the tax secrets of health savings accounts aren’t secrets at all—or at least they shouldn’t be. As the Society for Human Resource Management notes, it’s generally true that employer contributions are “excludable from an employee's income and are not subject to federal income tax, Social Security or Medicare taxes.” Contributions made by employers can also be deducted as a business expense.

These benefits add up, creating what the Society for Human Resource Management (SHRM) calls a “triplex tax advantage”:

Contributions are made pre-tax, the money in the accounts grows tax free, and withdrawals for qualified medical expenses are tax free.

Not only do employers who offer an HSA to their employees reduce their tax obligations, they’re also able to drive down monthly insurance premiums and reduce their Federal Insurance Contributions Act (FICA) tax bill. Talk about a win-win!

What Are Additional Benefits for Employers?

Outside of the financial advantages of HSA accounts, making them available to employees can also have a dramatic impact on employee satisfaction and loyalty, as well as lowering recruitment costs and overall health benefits costs. Most business leaders understand the importance of retaining their employees. And as recent studies have shown, nearly two-thirds (64%) of employees “said that a financial wellness program made them want to stay with their company,” with 56% even citing increased productivity. Providing HSAs and wellness programs often go hand-in-hand, and can have a major impact on attracting new talent to your company.

Keep Employees Healthier—and Happier—the HSA Way, with IMCU

At IMCU, we offer some of the best HSA accounts available, which benefit employees as well as employers. Not only do our HSAs require no minimum balance or monthly fees, they also come with a free IMCU Health Savings Debit Card that makes paying for healthcare expenses quick and easy.

When you partner with IMCU to offer your employees an HSA plan, we’ll help ensure that you and your employees understand exactly how these plans work—and how they can get the most value from them. We’ll even come on-site to answer questions and assist with setting these plans up. Learn more about the advantages of offering an HSA plan through IMCU today.