For small businesses, offering competitive employee benefits is crucial for establishing a positive culture. With that said, it can be difficult to fulfill everyone’s needs while also sticking to your budget. When this dilemma comes up, many small businesses look to Health Savings Accounts (HSAs). HSAs are unique in the fact that they keep healthcare costs low, while also providing significant tax savings. In this guide, we’ll lead you through the process of establishing a small business HSA. Along the way you’ll learn about compliance relating to HSA regulations and how this setup will truly benefit your team members. Let’s get started!
Understanding HSAs: The Basics
What is a Small Business HSA?
A small business HSA is a tax-advantaged savings account meant to assist individuals with their medical expenses. Both employers and employees can contribute pre-tax funds to their HSAs. Then, the HSA funds can be used to pay for eligible healthcare costs including doctors visits, over-the-counter medications, prescriptions, and much more.
HSAs are unique in the sense that they must be paired with a High-Deductible Health Plan (HDHP) in order to be eligible. The main advantage is that the funds in the HSA roll over from year to year, so employees do not lose any unused money at the end of the year. This makes HSAs an appealing choice for employees who wish to save for future medical bills while still reaping tax benefits now.
Benefits of Offering a Small Business HSA:
- Tax Advantages: Employer contributions are tax deductible, and workers can make pre-tax contributions to lower their taxable income.
- Cost Control: When combined with an HDHP, a small business’s HSA helps lower premiums while still providing comprehensive healthcare benefits.
- Employee Happiness: HSAs give employees more flexibility and control over their medical expenses, which improves workplace satisfaction and loyalty.
- Long Term Savings: Since these funds roll over into the next year and can be invested, employees are able to use them for medical needs during their retirement. This helps to ensure financial security in the future.
Eligibility Requirements
- Employer: Employers must provide a qualified HDHP as part of the company’s health insurance offerings.
- Employees: In order to establish and contribute to an HSA, employees have to be enrolled in an HDHP. If they are covered by any other type of health plan, they will not qualify for the HSA. Additionally, employees cannot be enrolled in Medicare or be listed as a dependent on another person’s tax return.
Choosing the Right HDHP
What is a High-Deductible Health Plan?
A HDHP or High-Deductible Health Plan is a type of health coverage plan which has higher deductibles and lower premiums, compared to typical plan types. In 2024, HDHPs must have:
- A minimum deductible of $1,600 for individual coverage and $3,200 for family coverage.
- Maximum out-of-pocket limits of $8,050 for individual coverage and $16,100 for family coverage.
These plans have lower monthly rates, making them a more affordable alternative for corporations, but employees must pay more out of pocket before the insurance kicks in. This is where the HSA comes in and helps employees manage their out-of-pocket spending.
Selecting an HDHP for Your Business
Choosing the best HDHP for your small business requires balancing premium expenses with the healthcare demands of your employees. Here are a few suggestions to help guide your decision:
- Assess Your Budget: Determine how much your company can afford to contribute to employee health insurance rates. HDHPs often have lower monthly rates, but you should make sure your employees are okay with the higher deductibles.
- Consider Employee Demographics: Younger, healthier team members may benefit from cheaper HDHP premiums, whereas employees with persistent medical requirements may require greater financial help through employer HSA contributions.
- Consider Network and Coverage: Not every HDHP is made equal. Be sure that the plan you select offers a wide network of providers and covers the service types that are preferred by your employees.
Setting Up Your Small Business HSA
Choose an HSA Provider
The next step in setting up your small business HSA is selecting a provider. Generally speaking, HSA providers are usually financial institutions or third-party administrators who oversee these accounts. Here are some things to consider when choosing your HSA provider:
- Fees: Look for suppliers who have low account management fees. Some providers actually waive fees after the account balance reaches a certain amount.
- Investment Potential: If you want to allow employees to grow their HSA savings, select a provider that provides a variety of investment options.
- User Experience: Make sure the provider has user-friendly platforms, such as online account management, smartphone access, and payroll integration.
Implement the HSA
Once you’ve chosen a provider, you can set up your HSA by following a few simple steps:
- Open Accounts: Work with your provider or another expert insurance advisor to create individual accounts for every eligible employee.
- Provide Contribution Information: Determine how much you, the employer, are going to allocate to each employee’s HSA. These contributions may be made on a monthly, quarterly, or annual basis.
- Follow the IRS Guidelines: In 2024, the yearly contribution limitations are $4,150 for individual coverage and $8,300 for family coverage. Employees age 55 and older can donate an extra $1,000 per year to their HSAs.
Contribution Limits
As previously noted, it’s crucial to stay within the annual contribution limits (outlined above), set by the IRS. It’s important to understand that the total combined contributions between employers and employees cannot go over these annual limits. Following the IRS regulations is essential in order for employees to reap all the benefits of their HSA, while also staying compliant.
Educate Employees About Small Business HSAs
Communicating the Benefits
Many employees may not totally understand the benefits of a small business HSA. To get ahead of any confusion, it’s critical to educate them on how HSAs work and why they’re beneficial Here are the main points to cover:
- Tax Savings: Discuss how employees can make pre-tax contributions to their HSA, lowering their taxable income.
- Rollover Feature: contrary to Flexible Spending Accounts (FSAs), HSA funds roll over from year to year, so employees do not lose unused money.
- Investment Opportunities: Highlight any investing options offered by your HSA provider that enable employees to increase their funds over time.
- Qualified Medical Expense: Provide a list of IRS-approved medical expenses that employees can use their HSA funds for, such as doctor visits, prescriptions, X-rays and more.
Enrollment Process
Make the enrollment process as smooth as possible. Give workers detailed instructions on how to sign up for the HSA, begin contributing, and manage their accounts. To expedite the process, consider using an online portal or collaborating directly with your HSA provider. You may also consider bringing in a certified insurance expert to help provide further clarification and answer specific questions that are over your head.
Ongoing Support
Just because the HSA is implemented doesn’t mean that your job is over. Continue to provide ongoing support so that employees are able to maximize their benefits. Consider offering the following:
- Financial Planning Tools and Insights: Educate your team about the various ways to use their HSA as part of a longer-term financial plan.
- Workshops, Seminars and Webinars: To go the extra mile, plan educational team sessions that focus on HSA investments. During these events, focus on helping employees grow their money for future endeavors by providing keys to help control their healthcare expenses.
Manage and Monitor Your Small Business HSA
Ongoing Management
Like any other employee benefit, regular maintenance is required to ensure that employees are still satisfied and properly taken care of. Take the time to monitor metrics such as the overall enrollment rate among employees. Additionally, talk with your team members or distribute a company survey to help understand what might be lacking from the program. Lastly, pay attention to how often employees are using their HSA funds. Monitoring these things is beneficial in helping you make adjustments for the future.
Compliance and Reporting
Maintaining compliance with IRS regulations is crucial. Ensure that you accurately record contributions on W-2 forms, and examine IRS guidelines on a regular basis for changes in contribution limits and qualifying expenses.
Reviewing and Adjusting
While we hope that your HSA pleases everyone at your company, like any health plan, changes might be necessary going forward. To get an idea of how it’s working out among team members, conduct an annual review. As mentioned, this includes going through your plan, outlining specific metrics relating to cost and use, and surveying your team’s level of satisfaction.
Small Business HSAs: A Smart Financial Move
Investing in a HSA for your small business provides major benefits to your team and yourself as an employer. By taking the following steps, your company’s HSA will increases employee satisfaction, while also lower your overall healthcare costs:
- Choose the right HDHP for your company.
- Find a reputable HSA provider.
- Educate your employees.
- Regularly review and adjust.
By using these strategies, you will empower your employees to take control of their health in an affordable fashion. Not to mention that your business will save big time on healthcare premiums. Overall, an HSA isn’t solely a financial tool, it’s also an investment in your team’s health, financial freedom and ongoing company success. For personalized guidance on how to set up your company’s HSA, visit Group-Health-Quotes.com (GHQ). GHQ also offers a variety of resources to help small businesses get insured and save money, and the best part is you can get a quote for free. To get started simply fill out a quick form or give us a call at 888-571-0291.
