The Guide to HSAs: An Important Strategy at No Cost to Small Businesses

A health savings account, or HSA, is a federally regulated program that allows employees to use pre-tax money (similar to a 401k) to offset healthcare medical costs.

HSAs are typically offered with high-deductible, lower-premium health insurance plans. The difference between these plans and a low-deductible, higher-premium plan can often differ by as much as $400 per employee per month. In a five-person business, that’s a difference of $24,000 throughout the course of the year.

The HSA approach tends to reduce spending because it puts the duty on the users to think about the cost. Many employees appreciate HSA’s because of their flexibility – expenses can range from hospitalizations to purchases of routine items like toothbrushes and face wash. Further, employees can carry over unused funds to future years – so there’s less pressure to use the funds.

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HSAs can be funded by employers, by individual employees, or by a combination of teamwork. The total contribution limit is $7,100 per family. After adjusting for a 33% tax rate, that’s equal to almost $11,000 in total spending power from what would have been otherwise after-tax dollars. The average employer contribution amongst companies with HSA plans was $1,028 in 2019.

HSA dollars can go a long way in covering employees throughout the course of the year – while reducing ever-rising premium costs for employers.