
Learn about health benefits
HSAs: A best kept financial secretAs a small business owner, you care about your employees, and want to help them prioritize their health and well-being. You also know that healthy, happy employees make for a healthier business and bottom line. But the cost of health coverage presents a challenge to both employers and employees.
One cost-effective solution to help offset the rising health care costs is a tax-advantaged savings account. There are several types of these accounts, and each comes with different rules and provisions, but the basic concept is an investment plan that enables employees to save for retirement or health care expenses using their pre-tax income.
In the context of health care, there are three main types:
Used only in conjunction with a High Deductible Health Plan (HDHP), employees deposit a specific amount of pre-tax money directly into their HSA through payroll deductions, then use those funds pay for qualified medical expenses. The IRS defines an HDHP for an individual as a plan with an out-of-pocket maximum of $7,000 and a minimum deductible of $1,400 for the year 2021.1 Employers can contribute to the account as well, and often do as a means to offset higher upfront costs for care.
Unused funds: Since HSAs are employee-owned, any money remaining in the HSA carries into the next year. And if an employee takes a new job at a different company, his HSA funds will follow him.
Like an HSA, employees contribute pre-tax dollars for medical expenses to this account via payroll deductions. While an HSA can only be used with an HDHP, an FSA is compatible with any type of health plan offered through an employer.
Health Reimbursement Arrangements, also known as "health reimbursement accounts" are a type of plan that reimburses employees for qualified medical expenses. HRA coverage may exist in addition to a standard group health plan, or alone. 7
Effective January 1, 2017, federal law established Qualified Small Employer HRAs — also known QSEHRAs — for companies with fewer than 50 full-time-equivalent employees who do not currently offer a group health plan to any employees.8 Only employers can contribute to the account, while employees can use the funds to cover premiums as well as healthcare expenses and receive pre-tax payroll reimbursement.
Carefully considering how to offer health benefits enables employers to manage costs while still providing employees with benefits that satisfy their needs.
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