One of the most important benefits employees get from their employers is healthcare coverage. By providing access to affordable health insurance plans -- often through substantial employer contributions that dwarf what workers are responsible to pay for themselves -- employers provide a level of financial security for workers who would otherwise face the risk of potentially unlimited healthcare expenses.
About two-thirds of workers get health insurance benefits from their employers, according to the latest numbers from the Employee Benefit Research Institute's latest Health and Workplace Benefits Survey. Yet only slightly more than one in five workers has access to a related benefit that many see as the wave of the future for healthcare coverage. Health savings accounts offer big tax advantages to workers, but employers seem reluctant to go down the road of offering them to their employees despite the potential advantages.
Why health savings accounts can save you money
The reason health savings accounts, or HSAs for short, are so attractive is that they can offer tax breaks that you won't get from other forms of health-insurance coverage. As an employee, you're allowed to deduct up to a certain amount of contributions you make toward your HSA each year, with the 2018 limits being $3,450 for those who have just individual healthcare coverage and $6,850 for those who have family coverage. Some employers add their own contributions to their worker's health savings accounts, and those contributions also come with the tax advantage of not counting as taxable income to the employee.
Even better, health savings accounts offer future tax advantages that are second to none. The investments in your HSA are allowed to grow and produce income and gains that don't get taxed while they remain within the account. Moreover, as long as you use HSA money for qualifying healthcare expenses, including paying doctor visit copays, prescription drug costs, and other necessary medical services and products, then you don't have to pay taxes on what you withdraw from the account, either.
HSAs can also help workers with their long-term strategies to finance healthcare costs. Many employees are familiar with flexible spending accounts, which have been around a lot longer and are more frequently among the benefits that employers offer. Yet unlike HSAs, flexible spending accounts don't let you carry forward unlimited amounts of unused money for use in future years. With flexible spending accounts, there's a use-it-or-lose-it philosophy that keeps some workers from using the plans. Health savings accounts allow you to carry forward as much unused money as you have left over, letting you save it until you truly need it.
Why don't more employers offer HSAs?
One reason employers typically don't offer health savings accounts is that the rules governing HSAs require a special form of health insurance coverage to go with them. High-deductible health plans put more of the burden of covering initial healthcare costs on workers, with large deductibles that apply to most expenses before the policy starts covering costs. Many workers feel uncomfortable with that burden, somehow fearing that high deductibles could affect their ability to get the quality medical care they need.
Yet monthly premiums for high-deductible health plans can be a lot less expensive than for traditional comprehensive health insurance, offsetting the higher deductible. Smart employers are offering some of their premium savings back to workers in the form of employer HSA contributions, essentially paying some of the deductible amount for their employees. Yet even among employers who do offer HSAs, adoption rates among workers aren't as high as they could be, with many choosing to keep their comprehensive health insurance regardless of the financial incentives.
A taste of things to come
Despite relatively low numbers of employers offering health savings accounts, the trend has favored making these tax-smart savings vehicles available to more workers. If you're fortunate enough to have access to an HSA, it pays to run the numbers and see how much using one might save you both in immediate taxes and in long-run tax benefits.