A look at the changing options in health savings

Employee health benefits are constantly on the minds of employers who are striving to offer well-rounded, competitive benefit packages in order to attract and retain key talent.

Employers are faced with the difficult task of having to focus on the bottom line cost of benefits, while also remaining committed to providing comprehensive benefits to their employees and families.

With significant increases predicted to affect the already high cost of benefits, along with concern over the potential Cadillac tax in 2018 (delayed until 2020), employers have started looking for different options.

These factors have caused companies to implement or seriously consider implementing a Health Savings Account qualified high-deductible health plan (HDHP).

An HSA is a tax advantaged medical savings checking account that is available to taxpayers in the U.S. who are enrolled in a qualified HDHP plan. The funds contributed to an HSA are not subject to federal income tax at the time of deposit.

Further earnings on an HSA and withdrawals for qualified medical spending are also tax free. HSA funds, unlike flexible spending accounts are portable - once contributed, the funds belong to the HSA owner.

These accounts have survived party changes, elections and health care reform, and are quickly becoming the fastest growing employee benefit. Yet, there seems to be a lack of knowledge regarding HSA plans and the tax advantages it provides.

According to a 2015 Healthcare Trends Study, approximately 40 percent of companies still provide employees with a choice of three or more health insurance plan options, which usually include a PPO, HDHP and HMO plan.

Echoing similar results, a 2015 Annual Employer Health Benefits Survey found that employees predominantly chose PPO plans over any other types of coverage.

However, the survey also noted that employees are embracing HDHP plans when they are offered (39 percent) over HMO plans (35 percent). More employers are looking to HSA qualified high-deductible health plans as a solution for the rising cost of benefits and possible looming Cadillac tax.

By design, high-deductible health plans and health savings accounts work together.

The health plan provides coverage for essential medical care and the HSA helps consumers manage their health care dollars, while providing a significant tax benefit. When choosing a high-deductible plan, most consumers take their premium savings and invest them in their HSA.

Because an HSA is owned by the consumer, any unused portion of these dollars grows - similar to a 401(k). HSA funds also have triple tax advantages to consumers: tax free contributions (deductible or pretax), tax free growth that rolls over from year to year and tax free distributions for qualified medical expenses.

At the time of retirement, HSA funds can still be used tax free for qualified medical expenses even when individuals change from employer benefits to Medicare.

Implementing a consumer driven health plan with an HSA can be a positive event when employers focus on communication, education and in many cases, contribute to their employee's HSA plans. A collaborative approach with a broker and HSA provider has shown that employee adoption rates increase when an employer has a well-thought-out implementation plan - the more education and communication, the larger adoption rate and bottom line cost savings for the employer.

While working with organizations in Illinois and across the U.S., it has been my experience that when employers have a trusted broker and HSA partner their communication is better, as is the employee adoption rate. Implementing an HSA plan can even help increase workplace morale. By offering an HSA qualified plan, employers are able to reduce their bottom line cost and employees become savvier with their medical spending while building a tax free medical nest egg.

• Dina J. Derman is senior vice president at Inland Bank, eBank and Health Savings Division in Oak Brook. Contact her at dderman@inlandbank.com.