The side effects of the Affordable Care Act continue to surface in the labor market. In order to help manage rising health care costs and comply with new regulations, large employers across the nation are making adjustments to their benefit plans. The changes will undoubtedly place more responsibility on employees and make health savings accounts more attractive.
Workers should prepare themselves for a more active role in their health care coverage. Large employers expect health care benefit costs to rise by an average of 6.5 percent next year, according to a new survey from the National Business Group on Health. However, employers plan to keep increases to 5 percent by expanding cost-share provisions, implementing or focusing more on consumer-directed health plans, and broadening their use of wellness programs. The survey includes responses from 136 of the country’s largest corporations.
“Despite the many distractions that the Affordable Care Act has created, large employers haven’t lost sight of the fact that rising health care costs remain a significant issue that needs to be constantly addressed,” explains Brian Marcotte, president and CEO of the National Business Group on Health. “Our survey shows that many employers are, in fact, taking necessary steps to rein in costs. This includes partnering with workers to engage in health care decisions and educating them to be better health care consumers, as well as sharing more costs with workers and narrowing their benefit options.”
As employers and consumers seek affordable options, health savings accounts will receive more attention. Let’s take a look at three benefits offered by HSAs.
1. Reduce taxes
HSAs are tax-advantaged savings accounts specifically used to pay for qualified healthcare expenses. They are essentially available to everyone who has a qualified high-deductible health plan but no other main health plan, is not enrolled in Medicare, and cannot be claimed as a dependent on someone else’s tax return. Individuals can claim a tax deduction on contributions made by him/her or someone other than employers, even if deductions are not itemized on Form 1040.
As long as you use HSA distributions for medical expenses such as doctor visits and prescriptions, they are not subject to taxes or penalties. Distributions may also be used for over-the-counter medicine if you have a prescription or if it’s for insulin, a relatively new restriction imposed by the Affordable Care Act.
2. Accumulate savings
Similar to some retirement accounts, interest or other earnings within HSAs grow tax-free. Your employer may contribute to the account, but HSAs belong to individuals, so they stay with you if you change employers or leave the workforce, and any remaining balance can be carried over to the following year. You can even invest your HSA funds in stocks and bonds if you wish to do so. If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse’s HSA after your death.
In order for individuals to take advantage of HSAs, you need a plan that has a minimum annual deductible of $1,250 and a maximum annual deductible of $6,350. For family coverage, the minimum is $2,500 while the maximum is $12,700. While these amounts may seem high compared to your previous plans, they also come with lower monthly premiums. However, the savings need to be placed aside for future medical needs. Consumers who choose the HSA route should make regular contributions so the money is there when you need it.
3. Growing popularity
The use of HSAs is growing rapidly, which should help bring more options to the market for consumers. For example, Fidelity Investments opened 48 percent more HSAs in 2013 from the prior year. At the end of 2013, HSAs have grown to an estimated $19.3 billion in assets and 10.7 million accounts, according to the latest survey from Devenir, an independent investment advisor in the HSA industry. This represents a year-over-year increase of 25 percent for assets, and 30 percent for accounts. Last year, people were able to open HSAs at more than 2,200 banks and credit unions.
“Fidelity continues to drive adoption of its health savings account business as companies and their employees realize their potential advantages both today and over the long haul,” said Will Applegate, vice president, Fidelity Investments, in a press release. “We believe one of the best ways for people to prepare for the escalating costs of healthcare in retirement is, if eligible, open a health savings account, as young as possible, to make the most of possible long-term investment gains and tax-advantaged growth.”
Follow Eric on Twitter @Mr_Eric_WSCS