Health care costs are stubbornly continuing to rise – and employers are looking for ways to protect themselves and find savings when it comes to providing health insurance for their workers.
Consider: According to the Kaiser Family Foundation, average employer health insurance premiums in 2015 totaled $17,545 per employee – a 61 percent increase over the prior ten years. Employer costs increased from $8,167 to $12,591, while the portion paid by employees increased from $2,713 to $4,955 over the same period.
If left unchecked, these escalating costs will prove devastating to hundreds of thousands of employers. And so they are increasingly turning to high deductible health plans, combined with tax-advantaged health savings accounts that let workers save money tax free for future medical expenses.
Why? Simple: They save money over conventional indemnity plans. The total premium outlay for both workers and employers was $17,545, on average, for family plans, and $6,281 for individuals, for all plan types. But for those workers enrolled in HDHPs, the annual total costs were $15,970 for individual plans, and $5,567 for individual plans, according to the Kaiser Family Foundation.
As a result, interest in high deductible health plans as a cornerstone of the employee health plan has exploded over the last ten years, with the percentage of workers with an HDHP rising from 4 percent in 2015 to 24 percent in 2015. The popularity of these plans – and the increased responsibility they place on plan participants to control costs – has been a key factor in reducing runaway price increases in employee health insurance costs in recent years.
Their popularity is expected to continue to grow: According to the Kaiser Family Foundation’s 2015 Employer Health Benefits Survey, 40 percent of all employers are considering offering only HDHP/HSAs to their work forces over the next three years.
How HDHPs Work
To qualify as an HDHP, the policy must have a minimum annual deductible of $1,300 for individual policies, and $2,600 for family plans, as well as maximum out of pocket limits of $6,550 for individuals and $13,100 for family plans. If one or more plan participants reaches age 55 during the year and at any time thereafter, the maximum contribution is $1,000 higher.
Workers covered by an HDHP who meet certain other eligibility requirements can contribute up to $3,350 to a health savings account, while families can contribute up to $6,750 per year. These contributions are pre-tax, and the money in those accounts is invested tax-deferred until the employee withdraws it. Withdrawals for qualified medical expenses are tax-free. Otherwise the money is taxed as income upon distribution. Participants under age 65 who make a non-qualified withdrawal from an HSA must pay a penalty of 20 percent.
Employers may make pre-tax contributions to worker HSAs provided they have a cafeteria plan in place providing for such contributions. Employer HSA contributions are not subject to income tax withholding, nor are they subject to FICA, FUTA or the Railroad Retirement Act.
Matching contributions won’t work, due to comparability testing rules (unless made via a section 125 cafeteria plan). Employers are not responsible for reviewing medical expenses paid for via the HAS. That’s the employee’s responsibility.
Or more information, or to start a HDHP/HSA workplace program for your company, speak to your insurance or employee benefits professional today.