The basic premise:
Tax-advantaged benefit accounts – like health savings accounts (HSAs) and flexible spending accounts (FSAs) – were created to help save and pay for healthcare in a tax-protected manner. Simply stated, every dollar you put into one of these accounts is worth more (up to 30% more!), because you don’t get taxed on the money you put in – and, your IRS-reportable income is decreased by however much you contribute. The phrase “free money” comes to mind for many.
The reality of the situation is this: Regardless of what health insurance plan you choose to participate in next year, you really should open and fund a tax-advantaged benefit account. It’s rarely a matter of should you enroll, but rather how much should you contribute to your account.
Planning and calculating your election:
While many election planner calculators exist to help you better understand your individual healthcare and financial situation, there are some important things you should understand and consider – because deciding how much money to put in isn’t always a perfect science:
- How much did you spend on healthcare last year? If last year was a normal healthcare year for your family, consider funding up to the lower of the two figures: (1) last year’s total spend, or (2) the IRS limit for the account. If you’re going to spend, get the maximum tax savings.
- HSA 2019 IRS Limit:$3,500 for an individual and $7,000 for a family
- FSA 2019 IRS Limit: $2,650
- To the best of your ability, predict the health expenses your family will incur next year and the costs of these expenses. Add up all your prescriptions, doctor visits, surgeries, orthodontia, and other anticipated costs. The sum of these costs can be a great minimum starting point for your election. At a minimum, contribute what you know you’ll spend for certain.
- What’s your deductible? If you’re not sure what you’ll spend, putting enough money in to cover your deductible is a great strategy. If you’re someone who typically reaches your deductible, you might as well reap the tax benefits of using your account to pay for your deductible.
- What will you do with extra funds?If you find yourself half-way through the plan year having used less money than planned, don’t worry.
- For HSAs, unused funds roll over year to year, can be invested, and grow tax-free – turning the account into a long-term investment vehicle that helps you save for future healthcare expenses.
- For FSAs, there are several great ways to leverage funds, like: Family planning, eye care, contact solution, acupuncture, sun block, and more.
- Arguably the hardest part of healthcare budgeting is planning for the unexpected. If you’re typically a high healthcare user, it will probably benefit you to increase your election by adding some ‘buffer funds’ on top of what you know you’ll spend. If you’re generally healthy and a relatively low healthcare user, you may consider forgoing additional wiggle room.
The bottom line
If there was a way to perfectly predict your healthcare spending, you wouldn’t be reading this. But, budgeting your healthcare finances can be downright challenging. The good news:
- Tax-advantaged benefit accounts give you a little tax-protected help to save on healthcare expenses
- Our election planning calculator helps you run different election/spending scenarios to help your decision making
- For HSAs, the money in the account is yours, carry’s forward year to year, and any interest or other earnings on the account are tax free
- For FSAs, if you over-fund the account, there are many everyday items you can purchase with your FSA. It’s better to over-fund then under-fund and miss the tax savings altogether.
Many people fail to realize the tax and retirement savings potential associated with tax-advantaged benefit accounts – do your homework, use these tips, predict your spending, and rest assured you’re doing your best to save for healthcare expenses.
When it comes to health insurance, there are different plans designed to meet different needs. The specific options available to you depend on your employer and your personal situation. Listed below are the five most common health plans and some basic information about each.
Preferred Provider Organization (PPO)
A type of health plan where you pay less if you use in-network providers. However, you do have the option to use doctors, hospitals, and providers outside of the network without a referral for an additional cost. Premiums and deductibles associated with this plan type are usually higher, but that comes with greater flexibility.
Health Maintenance Organization (HMO)
A type of health insurance plan that usually limits coverage to providers who work for or contract with the HMO. This type of plan generally won’t cover out-of-network care except in an emergency. You’ll likely pay less in premiums for an HMO compared to a PPO – sometimes significantly less – but you will sacrifice flexibility for the lower upfront costs.
High Deductible Health Plan (HDHP)
An HDHP can vary depending on the specific plan. These plans typically have lower premiums, so they cost less – as long as you don’t require a lot of medical care. The deductible is usually higher compared to other plans, and you need to pay this amount in full before the insurance provider chips in. To take advantage of a health savings account (HSA) you must be enrolled in a HDHP.
Point of Service (POS)
A type of health plan where you must select a primary care physician that belongs to the plan’s network, but have the option to use out-of-network providers for an additional cost.
Exclusive Provider Organization (EPO)
A managed care plan where services are covered only if you use doctors, specialists, or hospitals in the plan’s network (except in an emergency).
Save on healthcare expenses with a tax-advantaged benefit account
Regardless of which health insurance plan type you select, chances are you will incur out of pocket costs – in the form of deductibles, copays, coinsurance, etc.
Tax-advantaged benefit accounts – such as health savings accounts (HSAs) and flexible spending accounts (FSAs) – allow you to save money, tax-free, for eligible healthcare expenses.
Simply enroll in one of these accounts to reduce your taxable income and stretch your dollars an average of 30% further (depending on your tax bracket).
- Health Savings Account (HSA):If you elect a high deductible health plan, then you should open and fund an HSA. This account allows you to set aside money, tax-free, for the deductible and other healthcare expenses. The money in the account is yours, unused funds roll over year to year, and any interest or other earnings on the account are tax free.
- Flexible Spending Account (FSA):For all other health plan options, you should open and fund an FSA. This account allows you to set aside money, tax-free, to pay for eligible healthcare expenses that aren’t covered by your insurance plan. It’s a smart, simple way to ensure you are getting the most value for your healthcare dollars.
For information about the health insurance plan options and associated tax-advantaged benefit accounts available to you, please speak with your employer and refer to your plan documents.
How to maximize the value of your employee benefits plan
If you’re confused and overwhelmed by your benefit options, you’re not alone. With open enrollment quickly approaching, you may find yourself asking:
• Am I taking advantage of all the benefit options available to me?
• I keep hearing about tax-advantaged benefit accounts, what are they?
• How can these benefit accounts help me?
Don’t worry, we’re here to help. Let’s start with the basics.
What are tax-advantaged benefit accounts?
There are several types of tax-advantaged benefit accounts, all of which are designed to provide you more control over your hard-earned dollars and help you save on out-of-pocket healthcare costs.
• Flexible spending account (FSA): An account that lets you set aside pre-tax dollars to pay for healthcare expenses not covered by your health insurance plan. You, and in some cases your employer, may contribute to the account. The funds in the account must be used during the plan year.
• Health savings account (HSA): An account that lets you set aside pre-tax dollars to pay for current and future healthcare expenses. You, and in some cases your employer, may contribute to the account. The funds in the account roll over year to year and can be invested, allowing your money to grow tax-free. You own the account, so if you leave your employer, the funds travel with you.
• Health reimbursement arrangement (HRA): An employer-funded account that can be used for pre-defined healthcare expenses. Only your employer may contribute to the account.
How can tax-advantaged benefit accounts help me?
These accounts can:
• Help you save money. One of the biggest advantages of enrolling in a tax-advantaged benefit account is that is saves you money. These accounts let you set aside money, pre-tax, to pay for common healthcare expenses. By using pre-tax funds, you reduce your taxable income, which means you get to keep more of your hard-earned dollars.
• Help you stay healthy. These accounts let you set aside funds for preventative, routine, and unexpected care for not only you but also your family – making it easy to take care of health and wellness needs.
• Help you achieve financial goals. Growing healthcare costs is a major concern for most people today. These accounts help you manage and prepare for expected, as well as unexpected, out-of-pocket healthcare expenses.
Why should I enroll in a tax-advantaged benefit account?
If you’re going to spend even $1 out of pocket on healthcare expenses next year, you should enroll in a tax-advantaged benefit account. Depending on your expenses and tax bracket, by opening and funding an account you can save hundreds or, in many cases, thousands of dollars.
The bottom line
Tax-advantaged benefit accounts offer big savings. You are most likely already budgeting, saving, and investing as part of your personal financial plan, and these accounts can play a vital role in helping you achieve your financial goals. Don’t overlook key benefit options that can work to your advantage. Get the most value from your benefits plan by enrolling in a tax-advantaged benefit account.
Healthcare expenses are likely to be a major component of anybody’s retirement expenses. By using an HSA during your working years, you can help plan for these expenses and live your best life in your retirement.
ACTION REQUIRED BY ALL NEW JERSEY EMPLOYERS!
Effective October, 29, 2018, New Jersey is requiring all employers to offer 40 hours of paid sick leave per year to eligible employees. The new law is called the New Jersey Paid Sick Law and stipulates the following:
Employees accrue up to 40 hours of sick time at a rate of one hour for every 30 hours worked.
Employees may use up to 40 hours of sick leave in a benefit year.
Employees can use accrued sick time after the 120th day of their first date of employment.
Sick time must be accrued and sick time cannot be utilized for vacation or personal time.
Reasons for use of New Jersey sick leave include:
Diagnosis, care or treatment of-or recovery from-an employee’s own mental or physical illness, including preventive medical care.
Circumstances related to an employee’s or their family member’s status as a victim of domestic or sexual violence (including the need to obtain related medical treatment, seek counseling, relocate or participate in related legal services).
Aid or care for a covered family member during diagnosis, care or treatment of-or recovery from-the family member’s mental or physical illness, including preventive medical care.
Closure of an employee’s workplace or of a school/childcare of an employee’s child because of a public official’s order relating to a public health emergency.
Time to attend a meeting requested or required by school staff to discuss a child’s health condition or disability.
For additional information, or to find out more about how gente can help you and your clients with Human Resources compliance and challenges, contact us.
On May 10, the IRS announced 2019 Health Savings Account contribution limit increases within their release of Revenue Procedure 2018-30.
|Individual contribution limit
|Family contribution limit
In 2019, the HSA contribution limit for an individual will increase by $50 to $3,500 and for a family by $100 to $7,000. As a reminder, the 2018 family contribution limit recently increased to $6,900 with the update released by the IRS* on April 26, 2018.
In addition, the 2019 High Deductible Health Plan deductible amounts and out-of-pocket expense limits were also announced. To be eligible to contribute to an HSA in 2019, one must be enrolled in a high deductible health plan that meets the following requirements:
|Minimum annual deductible
|Maximum annual out-of-pocket
|Minimum annual deductible
|Maximum annual out-of-pocket
Today, the IRS published Internal Revenue Bulletin (IRB) 2018-10 that contains Revenue Procedure (Rev. Proc.) 2018-19.
Effective for calendar year 2018, the family contribution limit for HSAs has been lowered to $6,850 from the previously set amount of $6,900.
This change came as a result of the tax reform law (P.L. 115-97) that changed the annual inflation adjustment factor from the Consumer Price Index (CPI) to a new factor known as ‘chained CPI’. This change was anticipated to slow the rate of changes in all programs under the tax code, including HSAs.
In 2017, the Equal Employment Opportunity Commission (EEOC) resolved more than 99,109 workplace discrimination claims—securing more than $398 million from employers in the private and public sectors as a result of these claims. Discrimination lawsuits can be very time-consuming and expensive for employers, and can result in a loss of employee morale or reputation within the community.
Top Causes of Discrimination Claims
According to the EEOC, the following are the top 10 reasons for workplace discrimination claims in fiscal year 2017:
- Retaliation—41,097 (48.8 percent of all charges filed)
- Race—28,528 (33.9 percent)
- Disability—26,838 (31.9 percent)
- Sex—25,605 (30.4 percent)
- Age—18,376 (21.8 percent)
- National origin—8,299 (9.8 percent)
- Religion—3,436 (4.1 percent)
- Color—3,240 (3.8 percent)
- Equal Pay Act—996 (1.2 percent)
- Genetic Information Nondiscrimination Act—206 (0.2 percent)
These percentages add up to more than 100 percent because some lawsuits were filed alleging multiple reasons for discrimination.
What Employers Should Do
Employers should take the following steps to protect themselves from retaliation and other discrimination claims:
- Audit their practices to uncover any problematic situations.
- Create a clear anti-retaliation policy that includes specific examples of what management can and cannot do when disciplining or terminating employees.
- Provide training to management and employees on anti-retaliation and other discrimination policies.
- Implement a user-friendly internal complaint procedure for employees.
- Uphold a standard of workplace civility, which can reduce retaliatory behaviors.
For more information on discrimination claims and for tips on how to protect your business, contact gente today.
The Wall Street Journal (1/23, Whalen, Subscription Publication) reports that healthcare spending for Americans with employer-sponsored coverage rose in 2016 even though their usage decreased, according to an analysis conducted by the Health Care Cost Institute.
The Hill (1/23, Hellmann) reports that spending on healthcare “has increased because prices are rising, not because Americans are using more health care,” according to an analysis conducted by the Health Care Cost Institute. Data show “total health-care spending grew by 4.6 percent per person from 2015 to 2016 even as utilization of services remained steady, or declined in some cases.” Consequently, “health-care spending per person reached a new high of $5,407 in 2016.”
The Miami Herald (1/23, Chang) reports the analysis revealed that working Americans paid more for healthcare “every year from 2012 to 2016 – mostly due to double-digit price hikes for brand-name prescription drugs, inpatient surgeries and emergency room visits.” For the study, HCCI examined “more than 4 billion insurance claims for about 39 million people younger than 65 who were covered through their jobs.”
Modern Healthcare (1/23, Livingston, Subscription Publication) reports that overall, per capita healthcare spending grew by 15% from 2012 to 2016.
h/t to NAHU for the great brief!