A Health Savings Account (HSA), sometimes called a "high-deductible" health plan, is a new type of health plan in which the employee deductible is considered "pre-tax" money and is used to pay for health expenses, while the employee is covered for catastrophic health costs under the employer's health coverage.
Here is how an HSA works:
- You set up an HSA account for each employee with a bank.
- You withhold a certain amount of each paycheck for the employee and put it in the individual employee's HSA account with that bank. The amounts in the HSA are considered "pre-tax" money, and they are not taxable to the employee as income.
- There is a limit to the amount an employee can put into an HSA every year.
- The amounts an employee has in his or her HSA can be withdrawn tax-free for qualified health and medical expenses,including dental, vision, and chiropractic care, eyeglasses, hearing aids, and over-the-counter drugs.
- The amounts spent by the employee are considered the health plan deductible. When expenses exceed the deductible each year, the employer's health plan begins to pay, with the usual co-pays.
There are many benefits and drawbacks to HSA's, so if you are considering one for you and your employees, talk to several knowledgeable people.
