The beauty of employee directed benefits (aka HSA’s)

When employees elect the HSA option, there are a number of additional benefits that are not available with traditional plans. These benefits are quite substantial when analyzed over a period of 10-20+ years.

Healthy employees who minimally use the health plan except for an annual physical benefit little from an expensive health plan that offers very low copays they seldom use.

Representing roughly 2/3 of employee population, these healthy employees will be able to put the “premium difference” between the traditional plan and the HDHP into a Health Savings Account instead of towards a premium for a richer health plan that offers benefits the member rarely uses.

Employer contribution is linked to an HSA-qualified health plan that is often the least expensive plan offered by the insurance company.  If insurance premiums increase by 10%, the dollar amount of increase will be less for the affordable HSA-based plan than for the more expensive traditional plans. Since employer and employee share in paying the premium, both employer and employee benefit.

If an employer puts money into an HSA and an employee does not use that money, the money is effectively a “reward” for the healthy employee. This is a great way to start a wellness program.

With systematic savings in a tax-protected Health Savings Account for three to five years, employee can build a pool of tax-free money to pay large out-of-pocket maximums for several years. It makes great sense to plan and save in advance for big expenses.

HSAs function like a Medical IRA or 401(k), only better.  Withdrawals are tax-free for healthcare, while withdrawals from traditional IRA or 401(k) are taxable.

According to Fidelity Investment’s annual survey, the average couple will spend around $260,000 from age 65 to their final years.  They caution: “If you’re not factoring healthcare costs into your retirement savings strategy, you could be setting yourself up for a nasty financial shock.”   Employers have the opportunity to educate employees about this particular benefit and help them plan for their future.

Reference: https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise

Health savings accounts allow individuals to begin planning and saving for expenses.  Like a 401(k), both employer and employee can contribute to the HSA.  Here is the key benefit: employees can take withdrawals on a tax-free basis for health care, while withdrawals from a 401(k) or traditional IRA create taxable income.

For employers who do not have a retirement plan in place, HSAs can provide a double benefit, functioning as both a health and  retirement tool. Remember, unused HSA funds create income at retirement.

Employers and employees can make a contribution to an employee’s HSAs. In addition, employers can match employee contributions up to some dollar amount, such as $50 or $200 a month. Finally employees can payroll deduct pre-tax money into the Health Savings Account.  Employers can choose HSA providers that offer investment options such as an S&P500 fund inside the HSA. Interestingly, the fees associated with an HSA are substantially less than fees for a 401(k). At retirement, employees have the option of paying taxes on withdrawal for living expenses, or withdrawing tax free for health related expenses.

Employees can used HSA dollars for their own wellness program and pay expenses not covered by the health plan: weight loss programs (Weight Watchers), nutrition counseling to lower cholesterol and blood pressure, gym memberships (??), and other alternative healthcare wellness options.

One of the most important benefits of HSAs is the ability to pay claims with tax-free dollars.  This one feature makes HSA-based plans comparable to more expensive plans and substantially better for financing large medical bills where a plan member reaches the out-of-pocket maximum.

The effectiveness of using tax-free HSA dollars is illustrated in the December, 2015 HIU Magazine article by Robert Hopper, Ph.D., titled: “The Case for HSAs; or why nearly everyone can benefit from owning a health savings account.”

ImportantImportant Note: Over a period of 10-20 years, the HSA-based plan will provide significantly better benefits than traditional health insurance for a substantial majority of a company’s employees.

The beauty of the 21st Century Benefits (or Employee Directed Benefits) plan design is that an employer offers the powerful HSA-based health plan—with all its benefits to employer and employees — while also making available several of the best traditional health plans.  It is called employee-directed health care because employees get to choose the HSA option or the traditional health plan option that best fits their needs.

Read more about 21st Century Benefits!