Open Enrollment: What Is an HSA & How Does It Work?Submitted by The Participant Effect on January 18th, 2018
It’s that time of year again: businesses are rolling out open enrollment, leaving employees to make very important decisions in a very short time period. Part of good fiduciary risk management is educating workers on their options when it comes to retirement savings accounts, but thanks to health savings accounts (HSAs), this now applies to many health insurance plans as well.
HSAs are growing in popularity as employers seek to provide medical coverage without cutting benefits. But many workers still have questions about HSAs, even if their employers provide an open enrollment informational session. Here are a few things to help you fully understand how HSAs work and what benefits they offer.
What Is an HSA?
An HSA is essentially a savings plan that allows you to secure your money tax-free for medical expenses. For example, if you set aside $100 a month for medical expenses and don’t draw from it for a year, you’ll have saved $1200, so this can help accrue substantial savings for future medical expenses. HSAs must be set up in conjunction with a high-deductible insurance plan.
How Does It Work?
Once you’ve signed up for an HSA, you will be issued a debit card to pay deductibles, which can also be used for medical expenses like contact lenses and dental procedures. The HSA is intended to fill the gap left by a high-deductible insurance plan, allowing consumers to take charge of their own health care expenses. If you choose to withdraw funds for non-medical expenses, the amount will be taxed at your location’s income tax rate, along with an additional 20 percent if you’re under the age of 65.
Businesses with good fiduciary risk management will work directly with employees to explain how an HSA works, but it’s always a good choice to educate yourself before signing up for a plan. It’s a great deal for employees who are in good health since it allows them to save for future healthcare issues. However, older employees or those with many health issues may find that it isn’t the best option for them.
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