A health savings account (HSA) is an employee-owned account designed to set aside pre-tax money to pay for qualified medical expenses such as deductibles, copayments, coinsurance, and other out-of-pocket expenses included in IRS publication 502.
HSAs are powerful savings vehicles, however, they require a high deductible health plan (HDHP) that meets specific requirements. Employers who choose to offer an HDHP are able to make their employees’ healthcare more affordable, but not all group health plans have HSA eligibility.
In this blog, we’ll cover reasons why your group plan may not qualify for an HSA as well as the following three options that are available if that’s the case:
- Switch to an HSA-qualified group health plan
- Supplement your health plan with a group coverage health reimbursement arrangement
- Implement a taxable stipend
Why your group health plan may not qualify for an HSA
If your group plan has a high deductible but still doesn't qualify for an HSA, you may be wondering why. Many people believe that as long as their health insurance plan’s deductible and out-of-pocket limits meet certain IRS requirements, they are eligible to contribute to an HSA. However, an insurance plan must meet more than these limits to make it HSA-qualified.
According to the IRS, HSA-qualified HDHPs must have:
- A higher deductible than typical individual health insurance plans
- A maximum limit on the annual deductible and medical expense costs, including copays and other items
- No insurance coverage until the deductible is met, except for preventative care, and the following expenses:
- Health insurance premiums
- Long-term care premiums
- Dental expenses
- Vision expenses
You can confirm if your HDHP is eligible for an HSA by reading the policy’s coverage details or contacting your insurance company. If it turns out that your HDHP doesn’t meet these guidelines, you won’t be able to use it with an HSA.
Thankfully, you can use the other health benefit options we discuss below with your group plan to offset your HDHP’s deductible and help you cover your employees’ out-of-pocket healthcare costs.
Option 1: Switch to an HSA-qualified group health plan
The first option to consider if your group plan isn’t HSA-qualified is to simply switch to a plan that is. However, if you want to make the switch from your current group plan to an HSA-eligible plan, navigating the specific requirements can be difficult and time-consuming.
Getting familiar with the federal marketplace and state insurance carriers is a good place to start. Most insurers label their plans as HSA-eligible so you can guarantee you’re selecting the right plan before you purchase.
If you’re interested in shopping for an HSA-compatible plan, meeting with your insurance broker can help you find one that meets your needs and answer your questions. Sorting through the marketplaces and working with a broker can be time-consuming, but if you’re determined to have an HSA for your organization, it could be worth your while.
Option 2: Supplement your health plan with a group coverage HRA (GCHRA)
If you decide it’s too much trouble to switch your HDHP, another option you have is to supplement your current health plan with a group coverage HRA (GCHRA). The great thing about a GCHRA is that it will work with any group health plan, whether it’s a low deductible health plan (LDHP) or an HDHP.
A GCHRA, also known as an integrated HRA, is a tax-free reimbursement benefit designed to help employees pay for the out-of-pocket medical costs that aren’t fully paid for by their group health insurance plan, such as deductibles, copays, and other medical expenses. If you have an HDHP, a GCHRA can help ease the pressure of a high deductible while minimizing your premium costs.
Unlike an HSA, employers are not restricted to specific plans through any individual provider, and if you offer a GCHRA, you can keep your GCHRA even if you change insurance providers. This makes a GCHRA a good substitute if you were contributing to an HSA in the past but are no longer able to because of a change in your group health insurance plan.
Additionally, there are no contribution limits, so employers can set an allowance that works for their budget as well as their employees’ needs. Best of all, because the benefit is employer-owned, when an employee leaves the company, the unused funds stay with the employer.
Option 3: Implement a taxable stipend
If you want an even more flexible solution to amplify your group plan, you might consider a taxable stipend. With a stipend, employees receive a fixed amount of money to help pay for their insurance premiums and other out-of-pocket medical costs. The employer's contributions are typically added to the employees’ paycheck as wages, making stipends simpler to administer with fewer compliance complications.
It’s important to note that stipends are not without taxes. Employers are subject to payroll taxes and employees are prone to income taxes. However, putting the taxes aside, stipends are still a major perk.
Nowadays, employers can even offer stipends on a wider range of eligible expenses such as transportation, wellness, communication, work-from-home expenses, and more. Because of this, stipends are becoming an attractive addition to benefit packages to increase overall employee retention.
While an HSA offers excellent benefits, many employers may wrongly assume their HDHP group plan is eligible for one. Luckily, there are other options employers can consider if their group health plan isn’t HSA-qualified.
With a GCHRA or a taxable stipend, you’ll be able to supplement your group health plan with reimbursements for your employees so they have more control over their healthcare. If you think one of these customized benefit solutions would be right for your company, contact our team and we’ll get you started!