HSAs appeal as way to curb costs

Dear Dan: Our young business is hard-pressed to afford a full-blown health insurance plan. But our employees need something. Are health savings accounts a good option? – Insurance Shopper

Dear Insurance Shopper: The high cost of health insurance consistently ranks as a top concern among small business owners. And solutions have proven hard to come by. But health savings accounts (HSAs), which were introduced just a few years ago, are a more affordable option for many small businesses. What’s more, HSA rules were changed this year to greatly improve the benefits of these plans for both employers and employees.
Rising costs are fueling a surge of interest in HSAs from businesses both large and small. Health savings accounts work in IRA-like fashion to cover out-of-pocket medical costs with tax-sheltered money. An HSA is an investment account funded by each individual, with optional contributions from your business. The account is linked to an insurance plan and can be used to cover costs until the insurance kicks in. This allows you to set up a plan with high deductibles which can dramatically lower the premiums. The HSA takes the sting out of the deductibles.
Changes this year now let you fund an HSA with a one-time transfer from an IRA. And there is no longer a limit on the annual plan deductible – you can attach an HSA to a health plan regardless of the deductible.
Individuals can contribute $2,850 annually to a health savings account, and families $5,650. You can also fully fund an HSA regardless of what time of year you sign up for the plan. Your business can contribute to employee accounts, and you can also contribute more for lower-paid employees if you choose.
Employees can make pre-tax contributions to an HSA, and distributions from an HSA are not taxable if used for the account holder’s medical expenses, or those of his family. Participants can carry over unused funds from year to year.
But remember – an HSA cannot stand alone. It has to be combined with a health insurance plan. To be eligible for a health savings account, an individual must not be covered under another health plan, and cannot be claimed as a dependent on another person’s tax return.
These resources can help you:
• eHealthInsurance is an online health insurance broker specializing in small business: www.ehealth.com.
• HSAinsider is a helpful site devoted to health savings accounts: www.HSAinsider.com.
• Members of the National Federation of Independent Business (NFIB) have access to discounted health insurance products and can receive free HSA administration: www.nfib.com.
Daniel Kehrer can be reached at
editor@business.com.