The average paycheck doesn’t stretch as far as it did a year ago. Ongoing inflation, supply chain issues, and other marketplace factors have contributed to American households’ spending $445 more each month to buy the same items they did a year ago. And now that we are just emerging from the holidays, the financial belt feels even tighter for most people.
These financial realities have your employees looking for ways to reduce spending, but many are missing a straightforward way to keep money in their pocket while still protecting their health. One solution to this problem is the health savings account (HSA).
It’s likely your organization offers an HSA, and it’s even more likely your employees are not fully utilizing their account to save money on everyday healthcare needs. For example, about one-third of people enrolled in an HSA-qualified, high-deductible health plan have not opened an HSA. And even those who have an account may not be using it to its full potential. In fact, only about 57% of employees are confident they understand what an HSA is and how to use it. This lack of awareness and education could be costing employees big time, as only $95 billion out of $491 billion in out-of-pocket healthcare expenses in 2021 healthcare expenses were paid for with pretax dollars.
The good news is that your employees could be saving 30% or more on eligible expenses based on individual federal and state tax brackets. With the average household spending an estimated $1,600 each year on everyday health items, this kind of savings can add up.
Consider the following employee example. An employee who is not enrolled in an HSA and takes home $1,000 per paycheck (paying 30% in taxes and $100 in out-of-pocket healthcare expenses per paycheck) will have $600 per paycheck to spend on living expenses. In contrast, if that same employee enrolls in and contributes $100 in pretax income to an HSA each paycheck, the employee is only taxed on $900 of income, leaving the employee with $630 per paycheck. What about the $100 in out-of-pocket healthcare expenses? The employee can use HSA contributions to pay for those expenses directly with an HSA debit card or reimburse themselves after the fact. At the end of the day, that employee has an additional $30 per paycheck in spending money, or $60 per month.
That makes HSAs a powerful tool for employees, and it gives your organization a valuable opportunity to protect employees against economic changes while maximizing their healthcare spending. Here are five things you can do to help employees realize the full potential of their HSA during these challenging financial times.
Help Employees Establish an HSA
Whether you choose to establish an HSA option for your employees to enroll in or require them to set up the account on their own, make sure they understand what they need to do to get started. If you contribute to the HSA or provide a match, this will be extremely valuable to employees, particularly in this financial climate, so be sure they understand how to get started and what your policies are. It’s also important for employees to understand they don’t need to prefund the account. They only need to ensure their account is open to benefit from the HSA. Then, they can fund the account as needed to reimburse themselves for eligible expenses. Read more about funding strategies here.
Explain What’s Eligible
Few people realize how extensive HSA eligibility is, which means it is highly likely your employees are routinely buying eligible products today and missing out on the tax savings by using out-of-pocket funds instead of their HSA. For example, recent legislative changes added over-the-counter (OTC) hearing aids, menstrual care products, and OTC medications as qualified expenses. And many high-tech wellness devices are also eligible. To make sure employees get the most from their HSA, direct them to a searchable eligibility list.
Help Employees Identify the Best Deals
HSAs are an excellent savings vehicle, but employees who need to spend their dollars on current expenses can still benefit from deals. For example, discount programs like GoodRx may offer employees better deals on prescription drugs than they would get through their insurance. You can also encourage employees to sign up for newsletters that offer discounts to help them save on routine purchases like OTC medication, sunscreen, or bandages. Retail loyalty programs can also be a good way to receive exclusive coupons and discounts.
Highlight the Triple Tax Advantage
An HSA offers the very unique and valuable benefit of triple tax savings in that contributions reduce an employee’s taxable income, money in the account grows interest tax-free, and withdrawals for qualified health expenses are all tax-free. Make sure employees understand this benefit and how an HSA works for any stage of life, whether they need money for current expenses or are focused on saving for retirement.
Help Employees Define Their Spend-Save Strategy
Even if employees cannot fully fund their account from day 1, they can still benefit from the tax advantages of their HSA, as long as they save receipts for eligible products and services. If employees track their healthcare expenses, they can contribute to their HSA as they are able and immediately reimburse themselves for select expenses. You can make this strategy easy for employees by directing them to online expense trackers.
While there aren’t a lot of easy options for employees to reduce their spending these days, you could be sitting on an invaluable benefit: the company-sponsored (but individually owned) HSA. By helping employees understand, access, and maximize their HSA, you can help them save money without compromising their health.
Itamar Romanini is vice president and general manager of HSA Store and a long-time leader and innovator in consumer-directed healthcare and HSAs.