Is Your Business Optimizing Health Spending Accounts?

Health Spending Accounts Benefit Employee And Employer Finances

Employees highly value health spending accounts, which are also known as consumer-directed health solutions (CDH). Spending accounts are a powerful tool that addresses the three things most people want from their plan: health, finance, and well-being. The tax advantages that come with certain CDH, along with their investment opportunities and portability, allow employees to use them like individual retirement accounts. Other health spending accounts offer immediate tax advantages by lowering taxable income and allowing healthcare costs to be paid without paying income tax on those funds.

CDH solutions provide employees with significant benefits at little cost to the employer. Employers can also enjoy reduced costs in the form of tax breaks and better health outcomes of employees. With a little strategic thinking, employers can gain just as much from their health plans as employees do.

One Connected Experience

Employers who pair health plans with spending accounts can establish a well-designed benefits package that boosts its overall value. Having medical, dental, vision, and financial benefits that are all connected increases efficiency. This results in higher reimbursements and less paperwork. 

For example, employers who add Anthem spending accounts to their health plans enjoy the convenience of an all-in-one CDH experience. Users will have one debit card for all accounts, one portal, one app, and one customer service experience. 

In addition, an increasing number of companies are promoting a whole-health approach. Whole health factors employees’ medical, financial, and emotional considerations into their health plans. This can make a real difference. Employees have reported that broadening health insurance plans to include health and wellness reduces stress and increases their confidence in their company. Whole health has become a valuable tool for recruiting and retention, benefiting employer finances.

Which Health Spending Account Should I Choose?

Employers can choose from a variety of consumer-directed health solutions. These options include:

• Health Savings Account (HSA): HSAs are triple tax-advantaged spending accounts that help people with high-deductible health plans pay out-of-pocket medical costs. Contributions and investment growth are tax-free, as are withdrawals made for eligible expenses. Unspent funds in an account accumulate without expiring and can be invested for use on future eligible expenses. The funds in an account remain with the accountholder, even if their employment changes. This makes them especially attractive to employees looking for long-term financial solutions. Employers can also contribute to these employee-owned accounts tax-free.
• Health Reimbursement Account (HRA): Unlike HSAs, HRAs are owned and funded by employers with tax-free contributions. HRA balances can roll over from year to year, if elected by the employer, but the funds revert to the company if an employee switches jobs. 
• Flexible Spending Accounts (FSA): FSAs are employer-owned and usually can be used on all qualified medical expenses such as member cost shares and other IRS-eligible items. FSAs can be paired with any kind of medical plan (except HSA plans, but those can be paired with Limited Purpose FSA plans — see below). They also have tax advantages for both the employer and the member, as funds are contributed pretax. With a regular FSA, employees have access to the full year’s funds on day one of their plan.
• FSAs that are paired with an HSA plan are called Limited Purpose FSAs and cover only specific costs, such as dental or vision. 
• Dependent care FSA: This is a specific type of FSA that can be used for childcare expenses. These accounts are employer-owned but employee-funded. With a dependent care FSA, employees have access to the funds only as they accrue in the account.
• Commuter benefits: Employees allow their employers to deduct a pretax amount to pay for qualified transportation costs. With many businesses returning their workforces to the office, this is once again an attractive cost-savings measure for employees.

Among large employers (200-plus employees) that offer health benefits, 58% offer HSAs to at least some of their workers according to a study by KFF. The same study found that HSAs are nearly six times more popular than HRAs.

With all these tax-advantaged plans, employers save on FICA taxes for the amounts that are committed for deposit, currently resulting in a 7.65% savings per employee salary. For an FSA offering, if the average employee contribution reaches a specified amount (about $680) for the year, the tax savings for the employer cover the cost of the administration for the year.

A Winning Approach 

Employers who incorporate CDH within a connected benefits ecosystem contain costs through a more strategic benefits model. Employees, especially younger ones, value health spending accounts because the dollars they contribute are tax-advantaged and give them better control over their health coverage. This appeal can help entice job candidates and retain talent. By choosing the most suitable types of accounts for their business, and considering how they integrate with their health plans, employees can generate their own savings. The right health spending accounts create a win-win solution.