Most employers already know the key business benefit of a High Deductible Health Plan (HDHP): lower costs for the organization. With its more affordable premiums, an HDHP can help businesses and their employees take greater control of healthcare costs. It also can provide a viable option for many small employers that couldn’t otherwise afford to offer health benefits for their employees.
Not only does an HDHP offer lower premiums, it allows eligible employees to establish a Health Savings Account (HSA) — a tax-advantaged way for employees to cover healthcare expenses before co-insurance kicks in. But more than a traditional savings account, an HSA can offer financial benefits that many employees may not be aware of.
“A lack of education is the primary challenge that’s keeping employees from maximizing their contributions and getting the most from an HSA,” says PNC’s Bill Ware, Consumer-Driven Healthcare Product Manager Lead. “Many just don’t know what it is or what it can be. The key is to help employees move away from thinking of an HSA as a spending account and understanding it as a savings and investing opportunity.”
Benefits that Can Unlock the Full Potential of Health Savings Accounts
Educating employees to these HSA benefits can help improve their financial wellness today, tomorrow and even throughout retirement:
1. Wherever they go, it goes.
An HSA is owned by the employee. If they change insurance plans, switch jobs or retire, the account goes with them. And unlike a Flexible Spending Account (FSA), HSA balances roll over from year to year.
2. An HSA offers an investment opportunity.
More than a savings account, an HSA can be thought of as a 401(k) for healthcare. Balances can be invested into mutual funds to help build financial healthcare savings for retirement.
3. An HSA provides access to tax savings.
HSAs can be funded either by employee pre-tax payroll dollars or by employers. Account balances can accumulate tax-free interest and investment earnings. In addition, withdrawals to cover qualified medical expenses are also tax-free during employment or in retirement.
“Tax-free withdrawals are a huge benefit in retirement,” Ware adds. “If an employee uses 401(k) funds to cover medical expenses in retirement, those are taxed as income, but HSA withdrawals are not. So you’d have to withdraw more from a 401(k) to cover both the medical costs plus the taxes.”
There’s one more tax advantage: If an employee pays for a current qualified medical expense out of pocket — either to retain HSA funds so that their account can grow, or because they haven’t built up their balance enough to pay for an expense — they can always reimburse themselves in the future tax-free, even during retirement.
4. Withdrawals for non-medical expenses are penalty-free after age 65.
Much like a 401(k) or an IRA, employees can withdraw funds for any reason, without penalty, once they reach the age of 65. However, withdrawals for non-medical expenses will be taxable as income.
HSA Benefits for Employers
With its financial benefits, an HSA can help to motivate employee participation in an HDHP, which helps employees become more aware of costs and more mindful in where and how they spend their healthcare dollars. “Having people become more responsible, making cost-effective choices, shopping for better value, all of that can help reduce employers’ healthcare cost burden,” according to Ware.
Nearly half of employees admit to spending more than three hours a week thinking about financial stressors while at work, costing American businesses $500 billion a year in productivity alone. Healthcare costs are a major component of that stress as expenses overall continue to increase. As part of a financial wellness program, an HSA can help to reduce that stress by providing a sense of security for today and for the long run.
Not only can organizations make tax-deductible contributions to their employees’ HSA accounts, the IRS views employee pre-tax payroll deductions to those accounts as coming from the employer, which can result in savings on payroll taxes.
Driving Employee Education and Engagement
Whichever HSA you choose to offer, the key to employee participation is convenience in managing their account and accessing the information they need to make sound decisions. The PNC BeneFit Plus HSA includes an education hub to help employees understand the core features and resources of their HSA, as well as a mobile app to manage their accounts, make mobile payments, and shop for healthcare products and services. Employees can track and model potential future expenses through the online expense tracker tool.
The portability of an HSA is also a major consideration. While still fully owned by the employee, an HSA through an insurance plan provider can increase the administrative burden should your organization switch health plans. Choosing a stand alone administrator can be an important consideration for employers. Because PNC’s HSA is health plan agnostic, you can have greater flexibility to switch carriers and avoid employee disruption that can occur when moving their HSA to a new administrator.
One Part of the Financial Well-Being Big Picture
When considering an administrator for your organization’s HSA program, it is important to choose a provider that views healthcare as one aspect of addressing a major concern of every industry: employee financial stress. Today, this stress is taking a costly toll on American businesses, adding up to $500 billion a year in lost productivity alone. That’s why, in addition to helping manage healthcare costs, a financial wellness program should address all of your employees’ short- and long-term goals at every life stage, and provide the education resources to guide your employees every step of the way.
In 2004, PNC became one of the first banks to offer Health Savings Accounts in the marketplace, and today remains one of the top HSA offerers among financial services providers. Each year, we invest heavily in educational resources, digital tools and improving the user experience for our HSA clients. Since 2006, we have been represented on the American Business Association HSA Council, helping to guide legislation to eliminate barriers for healthcare consumers.
The PNC BeneFit Plus HSA is part of our commitment to the organizational financial wellness of our clients. This initiative can help organizations reduce turnover costs and increase productivity by improving the financial security and well-being of all employees. From core talent to emerging and established leadership, our comprehensive approach includes a focus on online and in-person education, digital tools, and clear, consistent communication. To learn more about our program and the PNC BeneFit Plus HSA, visit pnc.com/pncbenefitplus.