High Deductible Health Plan and Health Savings Accounts

With the health insurance landscape changing dramatically over the next year, I thought I would present another employee health insurance option for small business: The High Deductible Health Plan (HDHP) with a Health Savings Account (HSA). In 2014, in order for a plan to be considered an HDHP, the minimum deductible must be $1250 for an individual or $2500 for a family.  Offering this type of plan can be attractive for employers because the premiums are more reasonable than traditional health insurance plans. And, only HDHP plans can be offered in conjunction with Health Savings Accounts. Employees can contribute funds to these accounts and then use the funds to pay for medical expenses.  Health Savings Accounts offer many benefits for employees. Employees can have funds automatically deducted from their paycheck and contributed into their account tax free. And, as long as the funds are spent on qualifying medical expenses, employees have complete control over how the money is spent. Funds can also be rolled over from year to year and the employee gets to keep the funds even if they move to another job. For 2014, the contribution limit is $3,300 for an individual or $6550 for a family.  Employers can also choose to contribute to an employee’s HSA account, although it is not a requirement.    Of course, there are some negatives to HSA’s as well.  Companies have to take on the burden of administering the plan and deducting the funds from paychecks and then depositing them into employee HSA accounts. Employees must also have a clear understanding of what is considered a qualifying medical expense, because they will be required to pay penalties and taxes on the funds if they are used incorrectly. For instance, cold medicine is a qualifying expense but vitamins are not. Also, some employees can’t afford to contribute into their HSA account or pay the large deductible on the insurance plan.  So, there are several items to weigh before you consider offering this benefit to your employees. If you choose to go this route it is important to make sure that the high deductible plan you choose meets the minimum standards outlined in the Affordable Care Act. You can visit www.dol.gov/ebsa/healthreform/ for more information.