Susan Berry is Human Resource Director in a company called Frontline PR. She attended a national conference on compensation and benefits. When she returned to her office she proposed the use of a Health Savings Account, hereinafter referred to as HSA. She argued that an HSA combined with a high-deductible health insurance plan would be rather beneficial for the company’s performance. If the company approves this new scheme, the organization will no longer employ the fee-for-services plan, as well as the Flexible Spending Account (FSA), which are currently in place. Susan Berry stated that such a strategy will allow the company to save significant sums of money. At the same time, the HR director believes that if the employees are involved in the establishment of their own healthcare plan, then they will exercise greater responsibility when it comes to a more prudent utilization of healthcare benefits. However, there are employees who are hesitant to implement the plan especially with regards to the perception that the employees will have to spend more out-of-pocket on his or her own healthcare. It is important to learn more about the intricacies of the HSA.
Susan Berry should explain the employees and the board of directors that an HSA has many benefits. It is considered as a tax-advantaged method of purchasing health insurance and it has been available since 2004 (Fishman, 2008, p. 383). It has two primary benefits: first, it provides easy access to funds when needed, and it helps the employee save money through tax savings. At the same, it allows flexibility because the HSA mechanism does not rely on conventional health insurance systems to pay for insignificant and routine medical expenses (Fishman, 2008, p. 383). Through this method the employee is provided with the capability to cover these minor medical expenses. The flexibility can be very attractive for employees because it can be rather convenient for them.
Although the convenience factor can be an appealing component for the HSA, there is another reason as to why employers must reconsider its implementation in their respective organizations. The employers will soon realize that it is not easy to set-up an HAS. In the initial phase, the business organization must establish an HAS through an insurance company, bank or other financial institutions (Fishman, 2008). The employees contribute to this account, and their contribution is tax deductible.
Health Savings Account and Its Features
There at least five important feature of the HSA that makes it an attractive method to provide healthcare for employees. First, the employee can withdraw the money and use personal funds to cover any type of health-related expense (Shilling, 2008). Second, the employee can utilize the funds from the HSA to pay a health insurance policy with a high deductible; then the funds can be withdrawn from the mentioned account. Third, the premiums for the high-deductible health insurance policy can become lower when compared to traditional comprehensive coverage policies (Fishman, 2008).
The fourth feature of the HSA is that the high-deductible amount taken from the salary is tax deductible. It is deducted from the employee’s gross income and treated like a business deduction (Shilling, 2008). Finally, the fifth HAS’ feature enables the account holder to apply it as some form of an investment fund. It has to be pointed out that an HSA account was established through an insurance company or a bank. These institutions can help the account holder to invest the funds that were not used and invest in money market accounts, stocks, bonds and mutual funds (Shilling, 2008).
The money grows when it stays on the account and it is tax free (Slesnick & Suttle, 2011, p. 129). At the same time, the withdrawals are also tax free as long as the money was spent on qualified medical expenses (Slesnick & Suttle, 2011, p. 129). Furthermore, in the case the account holder dies, his or her spouse becomes the account’s beneficiary as if the spouse owned the account from the very beginning.
The flexible savings account, on the other hand, seems to be flexible only in terms of the salary deduction scheme but, apart from that, it is not as beneficial as an HSA when it comes to the account’s long-term value. In FSA, the unused money at the end of the year is forfeited. The money forfeited is not returned to the employee. Thus, the employee has to figure out the amount of money needed for the year in order to contribute only the amount that he or she will need for that particular year (Garman & Forgue, 2011). Thus, it is better to own an HSA together with a high-deductible insurance plan.
Susan Berry should push through with the plan to establish an HSA and a high-deductible insurance plan. The employees in this particular firm can afford to shift to this new scheme. Furthermore, the HSA offers more flexibility than the FSA. At first glance it seems that the FSA is also flexible as the employees can draw money from the account anytime they need to cover routine medical expenses. However, when the money is not spent, the funds left in the account are forfeited and returned to the employer. In the case of the HSA, it is much better if the money is left unused because the funds that are left in the account can be invested into stocks, bonds, and money market accounts. The funds generated by the HSA can form part of the employees’ retirement fund. At the same time, if anything happens to the employee, the funds in the HSA are transferrable to the spouse and the spouse can access the account as if it belonged to him or her from the start. Thus, the seemingly large amount needed to establish an HSA is negated with potential earnings over the years. At the same time, the money used to fund the HSA account can be partly recovered through tax deduction. Furthermore, the company can negotiate for a lower premium on insurance plans if the employee has an HSA. The company also benefits from this scheme through lower cost of healthcare services.