Implementing a high deductible heath plan (HDHP) means lower premiums for the organization, but it shifts more healthcare costs to your employees – like a high deductible and added out-of-pocket costs. Fortunately Health Savings Accounts (HSA’s) provide employees with the ability to use pretax dollars to pay for out-of-pocket costs. But there are eligibility requirements. Here are the highlights.

Any adult can have an HSA if:

  1. The employee has coverage under an HSA-qualified, high deductible health plan (HDHP)
  2. The employee has no other health coverage (certain types of insurance, such as specific injury or accident, disability, dental care, vision care or long-term care, are permitted)
  3. The employee is not enrolled in Medicare
  4. The employee cannot be claimed as a dependent on someone else’s tax return

Contributions to your HSA can be made by an employee, his/her employer or both. However, the total contributions are limited annually. If the employee makes a contribution, he/she can deduct the contributions (even if the employee does not itemize deductions) when completing his/her Federal income tax return. Additionally, some employers will allow employees to make HSA contributions as tax-free salary reductions.

Contributions to the HSA must stop once the employee enrolls in Medicare, however, he/she can still use accrued HSA funds to pay for medical expenses tax-free.

With the rising costs of health insurance, high-deductible health plans, and HSAs, are options that more organizations are exploring. And that’s where we can help.