A Healthy Boost
New accounts offer a less-expensive health insurance option for businesses and employees.
For relief, Hernandez turned to a new option for health benefits called health savings accounts, or HSAs. The program was created in last year's federal Medicare Prescription Drug, Improvement and Modernization Act. Gov. Jeb Bush recently signed legislation requiring all insurance companies in Florida to offer the new type of health plan.
HSAs allow employees, their spouses or dependents enrolled in high-deductible health insurance plans to save for qualified medical expenses -- ranging from hospital or physician care to prescription and over-the-counter drugs and other health-related products. Unemployed workers can use the money in their HSA to pay health insurance premiums.
The premise of the new program is that by requiring higher deductibles, premiums will be lower and employees will invest the premium savings in the tax-deferred program, says Randi Grant, small business financial planner and CPA at Fort Lauderdale-based accounting firm Berkowitz, Dick, Pollack & Brant LLP. She calls it a "health insurance IRA."
Previous health savings programs were limited to small-business employees or self-insured workers. But the new program's availability to employees of businesses of any size doesn't make it right for all, Grant says. The most likely candidates are employers like Hernandez, where lower premiums will help the bottom line and his ability to recruit and retain talent.
As with an IRA or medical savings account (MSA) plan, HSA plans must be opened by a qualified HSA trustee or custodian, like a bank or other financial institution.
The savings for the employee can be significant, Grant says. For example, a family of five, in which one parent has access to an HSA plan, can put away $5,150 tax-deferred. That can save upward of $1,700 in taxes, Grant says.
Hernandez is hoping the lure of tax savings and lower premiums will help him attract and keep talent -- and stay competitive. Working with Maria Legarda at Florida Employer Solutions, an HR outsourcing company in Casselberry, Hernandez has raised his deductible to $5,000, which has cut his premiums dramatically, he says. He hopes employee loyalty -- and an improved bottom line -- will follow.
Why You Should Consider an HSA
Health savings accounts have numerous benefits for small businesses and their employees:
- Reduced premiums. Because HSAs require a minimum policy deductible of $1,000 per individual, premiums may be lower than a plan with a $250 or $500 deductible.
- Individuals (or their employers) can contribute up to $2,600 (or $5,150 per family) to HSAs each year. Those over 55 can make $500 in extra contributions annually. Employer contributions are not included in taxable income.
- Tax savings. HSA contributions and any earnings in federally qualified programs grow tax-deferred and can roll over from year to year. The amount deposited can be deducted from gross income on the employee's tax return. The employee does not have to itemize deductions to take the HSA deduction. Allowable distributions are not taxable as long as they're for qualified medical expenses. Non-qualified distributions incur a 10% penalty. After age 65, withdrawals can be for any reason.
- Portability. HSAs belong to the employee, so as jobs change, the account moves with the employee. Employees with existing medical savings accounts (MSAs) can roll them into an HSA plan.