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April 20, 2011

Weekly Wednesday Acronym – HSA

For those of you who work with benefits, you may be familiar with “Healthcare Savings Accounts” commonly referred to as HSA’s.  But you may find them somewhat confusing and difficult to explain to employees…or even your President & CEO as you consider options for medical insurance plan renewals.

What is an HSA?  In simplest terms, is a tax-free account that can be used by employees to pay for qualified medical expenses.  In order to have an HSA, the individual must meet the following eligibility requirements:

  • Must be covered by a High Deductible Health Plan (HDHP)
  • Must not be covered by other health insurance
  • Is not eligible for Medicare
  • Cannot be claimed as a dependent on someone else’s tax return

So why would it be of benefit for employees to have an HSA?

  • Money in the account earns interest and accumulates tax free so the funds can be used now and in the future
  • Contributions to do not have to be spent the year they are deposited (unlike a Flexible Spending Account)
  • If an employee changes jobs, they can take the account with them and continue to use it to pay for qualified healthcare expenses

Employers are somewhat split on their opinion of HSA’s.  Proponents believe they are a way to help reduce the growth of health care costs, as insurance premiums for HDHP plans are typically significantly lower.  Additionally, since the employee is paying for more medical expenses out of the HSA, they are being forced to consider treatment costs and alternatives more closely than with a traditional medical insurance plan.  However, other employers say they worsen, rather than improve, the U.S. health system’s problems as they may encourage healthy employees to leave insurance plans.   

In any case, it is an option worth considering and discussing with your insurance vendor / broker when it’s time for your annual medical insurance renewal.  And the best advice is always to stay healthy

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