HSA Accounts 101:
Understanding the
Basics and Benefits

Small business owners know that there’s no easy answer for promoting a wellness-focused, employee- centered workplace, especially when it comes to insurance coverage. But what if there was a way to help your employees more effectively take advantage of their existing benefits and further relieve the financial burdens of comprehensive health insurance coverage?

For small business owners looking to help employees make the most out of their health care coverage, Health Savings Accounts (HSAs) shouldn’t be overlooked. While Blue Cross and Blue Shield of Illinois provides no shortage of ways for members to stay happy and healthy without unnecessary costs, HSAs provide a unique set of benefits that ensure small business employees can get the coverage they need without breaking the bank.

What is an HSA?

Health Savings Accounts are tax-advantaged savings accounts designed to help individuals set aside funds to pay for qualified medical expenses. These accounts are available to those enrolled in high-deductible Preferred Provider Organization (PPO) health plans and offer tax benefits such as pre-tax contributions, tax-free growth on invested funds and tax-free withdrawals for eligible expenses. Additionally, HSAs allow funds to roll over from year to year, providing long-term financial flexibility for future health-related needs.

HSAs can be used to cover a wide range of medical costs, including:

• Dental services
• Vision care
• Prescription medications
• Doctor visits
• Some over-the-counter drugs

HSAs are often compared to other tax-advantaged health accounts, such as Flexible Spending Accounts (FSAs) and Health Care Accounts (HCAs). While FSAs also offer pre-tax contributions for medical expenses, the key difference is that FSAs typically have a “use it or lose it” policy, meaning funds typically must be spent within the plan year or forfeited. HCAs, on the other hand, are employer-funded accounts that can only be used for specific health care expenses determined by the employer.

Unlike HSAs, HCAs are not portable if an individual leaves their job. HSAs, in contrast, are owned by the individual, roll over annually and can be used even after retirement, making them a more flexible and long-term savings option for health care costs.

How Do HSAs Work?

HSAs work in conjunction with high-deductible PPO health plans to help keep premiums lower for members. High-Deductible Health Plans (HDHPs) require individuals to pay more out-of-pocket for medical services before insurance coverage kicks in, but they also come with lower monthly premiums compared to traditional health plans.

HSAs complement these plans by allowing members to set aside pre-tax money to cover qualified medical expenses. This provides individuals with the financial flexibility to manage health care costs while simultaneously benefiting from reduced monthly premiums. However, it's important to note that only those enrolled in an HDHP are eligible to open and contribute to an HSA.

The Benefits of Having an HSA

For small businesses, HSAs can play a major role in comprehensive health care coverage by giving employees increased financial flexibility and unique benefits, such as:

• Long-Term Savings and Financial Control: Employers can contribute to their employees' HSAs, helping to build savings that can be used for out-of-pocket health care costs, which is particularly valuable for employees with higher deductibles. HSAs also empower employees to take more control of their health care spending while offering long-term savings opportunities, as funds roll over year to year. Additionally, HSAs are portable, meaning that the funds remain with the member even if they switch jobs or health plans. This flexibility gives employees more autonomy in managing their health care expenses and offers peace of mind knowing they can use the funds when and where they need them.
• Tax Advantages: Contributions to HSAs are made pre-tax, reducing taxable income, and the funds grow tax-free through interest or investments. When used for qualified medical expenses, withdrawals are also tax-free, providing a triple tax benefit. This makes HSAs a powerful tool for saving and managing health care costs efficiently.
• Same Providers as PPOs: HSAs often work in conjunction with PPO health plans, giving members access to the same broad network of providers as traditional insurance, ensuring they don't sacrifice care for cost-saving measures.

Conclusion

HSAs provide a valuable opportunity for small business owners and employees alike by offering significant tax advantages, greater financial flexibility and long-term savings potential. By pairing an HSA with a high-deductible health plan, employers can offer their workforce access to comprehensive health care coverage with lower premiums, while empowering employees to take control of their health care spending. With the ability to roll over unused funds year after year and portability across jobs, HSAs create a sustainable option for covering current and future medical expenses.

If you're looking to enhance your employee benefits package, consider selecting an insurance policy that includes HSAs to give your team the tools they need for both short and long-term health care financial security.