HSAs allow your employees to put away funds to pay for future medical expenses. Usually, these accounts are funded with pre-tax deductions from your employees’ paychecks, but if they didn’t max out their contributions last year, they still can do so up until the tax-filing deadline.

Under IRS rules, for 2023 employers and employees can contribute a combined $3,850 for single employees and $7,750 for families. (For 2024, the limits are $4,150 for single coverage and $8,300 for family coverage.) Since funds workers contribute to their HSA are made before their salaries are taxed, they reduce their overall taxable income.

Employees 55 and older can contribute an additional $1,000 every year as a catch-up contribution on both single and family plans.

One of the key features of these plans is that the funds in them can be carried over from year to year and can be invested like a 401(k) plan. Funds in HSAs can be used to pay for a myriad of out-of-pocket medical-related expenses, pharmaceuticals and medical devices. Withdrawals to reimburse for these expenses are also not taxed.

Not everyone is eligible to participate in an HSA. They are only available to employees enrolled in a high-deductible health plan. HDHPs feature lower premiums in exchange for a higher deductible, meaning the employees have to pay more out of pocket before coverage kicks in.

Spread the word

Consider sending out a memo to your staff reminding them that if they didn’t max out their HSA contributions last year, they can still do so until April 15.

Under IRS rules, even staff who didn’t have an HSA last year are eligible to open one for 2023 and contribute funds to the account up until April 15. The only catch is that any funds they contribute can only be used for future medical bills after the account is set up.

The HSA administrator will generate the required tax forms that your employees will need to include when filing their taxes. There are two forms:

• IRS Form 5498-SA, which reports contributions, and
• IRS Form 1099-SA, which reports distributions taken out of the HSA.

Individual filers must also report the figures on those two forms on IRS Form 8889.

Congress in 2020 untethered HSAs and flexible spending accounts by changing the rules that prohibited account holders from using the funds in their accounts for over-the-counter medicines and other non-prescription health products and services. That change, which is permanent, was done through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

HSAs are a great option to help employees save for health care expenses since all unused funds can be rolled over from year to year (there is no use it or lose it penalty). HSAs also provide the potential to build a health care savings nest egg, the funds in which can be invested so they can grow.

There is also the much-touted fact that HSAs offer a triple tax benefit:

• Contributions are not subject to federal income taxes;
• Earnings from interest and investments are tax-free; and
• Distributions to pay for qualified medical expenses are tax-free.

Additionally, people over 65 can withdraw funds for any purpose without incurring a penalty, although if not used for qualified medical expenses, they may be subject to income taxes.

Here are some tips to help your employees access HSAs:  

Design a strong plan

HSAs must be tied to a high-deductible health plan and there are certain steps you can take to make them more attractive to your workers.

The HDHP plan should have a lower premium than a traditional plan in order to give your employees affordability and leftover funds to funnel into the HSA.

You can instill confidence by:

• Providing your employer contribution on the first day of the plan year to alleviate concerns about covering the deductible.
• Utilizing a Section 125 cafeteria plan to allow employees to make pre-tax salary reduction contributions.
• Putting in place a matching contribution structure to employees making salary reductions.

Educate and support your staff

Plan your HSA messaging early and way ahead of open enrollment to maximize interest. This should be a year-round educational effort that engages your staff and helps instill confidence in HSAs.

Remember, the messaging should be different depending on the age of your workers. You may need to have different approaches to educating baby boomers compared to Gen Z staff.

Help them make good decisions

You should be able to show your employees at a glance which health plans will save them money. There are tools available to do cost-benefit analyses of how much an employee spends on a health plan and if it was the most cost-effective choice.

The average employee leaves $1,500 on the able in money they could have saved on premiums had they chosen an HDHP, particularly if they don’t use health care services often.

One way to illustrate how much money they may be wasting is to provide claims-based report cards, which show whether or not they made a good choice the previous year ahead of open enrollment.

The takeaway

The goal here is to educate your workers about the power of HSAs and how having one can help them amass a substantial war chest of funds for any future expensive health care needs. If entered into early, an employee can set aside hundreds of thousands of dollars for unanticipated health care expenses.

If you provide support and education, your staff will be more engaged, resulting in them making better health care choices.