Panicked biz owners often cite the rising cost of health insurance as one of their top concerns. They know that workers value their medical coverage. But as owners they feel trapped, and must either pass along rate hikes or cut benefits entirely.
A relatively new health plan option (introduced in 2004) offers hope. Health Savings Accounts (HSAs) 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 accounts must be linked to an insurance plan that has a high deductible of, say, $1,000 to $2,500 or more. Money from the HSA pays health expenses until the insurance kicks in.
Here are the key features:
- The annual contribution limit to an HSA matches the deductible on your health insurance. For individuals the limit is around $2,800; and around $5,600 for family coverage, with amounts adjusted annually to inflation.
- The employer, individual or both can make contributions.
- Plan providers will generally be insurance companies or banks. If your business sets up the plan you will arrange for employee HSAs.
- To be eligible, an individual must be covered by a high-deductible health plan and must not be covered by other health insurance.
- Each individual has control over the assets in their account.
Action Steps
The best contacts and resources to help you get it done
Become an HSA insider online
Quickly discover what HSA plans can do for your business, see how they work, get coverage quotes and more.I recommend: HSA Insider is a marvelous site devoted to HSAs. Includes basics, a quick way to find and compare HSA-eligible insurance plans, assistance to open your own HSA and even find a doctor. eHealthLink also has helpful HSA information and a handy Contribution Calculator.
Get the official HSA word with hands-on help
Administration of the HSA program falls under the U.S. Department of the Treasury.I recommend: These HSA Frequently Asked Questions are about as authoritative as they get, coming from the Treasury Department. Download Uncle Sam's All About HSAs guide. Get authoritative answers on who can have an HSA, using an HSA, setting up an HSA, managing an HSA and employer participation in HSAs.
See what the insurance industry says
Health insurers and agents are all over the HSAs, with advice and information on getting set up.I recommend: The National Association of Health Underwriters has a good HSA Web site with basic info on how HSAs work and how to find an HSA plan agent.
Locate insurers offering HSAs easily online
Find providers in your state.I recommend: HSA Resource Center can put you in touch with insurance companies that offer HSA plans in your state. HSA Finder is an independent resource with a special help section on how to select an HSA plan for your business. Health Decisions, which represents companies offering HSA plans, has a simple online locator for HSA plan services in your state.
Comparison shop HSA plan pricing
Web-based services make it easy.I recommend: The eHealthInsurance small business section delivers a complete perspective on small business health plans. The site has a section devoted to HSAs.
Tips & Tactics
Helpful advice for making the most of this Guide
- Unspent funds carry over, so the accounts have the potential to rack up big balances over years of untaxed contributions and investment gains.
- Premiums on health plans with high deductibles are much more affordable.
- Employer contributions to a tax-favored HSA are exempt from payroll taxes, and the employee is not taxed either.
- HSAs compete with other tax-advantaged health care options. But word is now filtering out that for small business, nothing beats the generous tax benefits and broad eligibility features of HSAs.
- As medical costs soar, HSA popularity is taking off and they may soon become the dominant player.
- HSAs can't do anything about soaring medical costs, but they at least give small business owners and employees a tax-savvy tool to keep coverage in place.
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