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Is offering an HSA really less expensive for an employer?

It can be. High deductible health plan premiums are lower than the typical HMO and PMO premiums. There is also research available that speaks to how HDHP plans have less spend overall by employees on an annualized basis as they learn to “shop” for lower costs.

Do employees get a tax benefit from an HSA?

They can if you, as the employer, offer pre-tax contributions through a Section 125 plan (also called a salary reduction or cafeteria plan), generally through direct deposit of payroll. You, as the employer gain a benefit because employee contributions lessen the payroll tax burden for you as well.

Does an employer have to make contributions to an employee's HSA?

No, employers are under no obligation to make contributions to employee HSAs. Many employers find that making a contribution to employee’s HSAs may help improve adoption of HDHPs and HSAs, especially during a transition year coming off of a traditional type of health coverage to an HSA qualified plan.

Are all high deductible plans HSA qualified?

No, HSA qualified plans have minimum deductibles, maximum out of pocket requirements and limits contributions on an annualized basis. The IRS has set guidelines and publishes changes through alerts and through updates to IRS publication 969

May an employer fully fund the employee’s HSA at the beginning of the year?

Yes, an employer may fully fund the employee’s HSA at the beginning of the year, but you have to keep in mind that the HSAs belong to the employee. Once an employer funds an account, they lose control of all contributions for the remainder of the year. It is for this reason that many employers elect to fund employee HSAs periodically throughout the year.

May an employer fully fund the employee’s HSA at the beginning of the year?

Yes. An employer may fully fund the employee’s HSA at the beginning of the year, however HSAs belong to the individual and not the employer and the employer has no further control over the accounts after they have been funded. As a result, many employers elect to fund employee’s HSAs periodically throughout the year.

Are an employer’s contributions to an HSA treated as a deductible healthcare expenses?

The tax treatment of employer HSA contributions depends on how the business is incorporated. For sole proprietors, partnerships, and S-corporations, contributions to a partner’s HSA will be treated as a distribution to the partner and included in the partner’s income and may be deductible by the partner but not by the business (see IRS Notice 2005-8 for treatment of HSA contributions in exchange for guaranteed payments of services rendered for partners and two-percent shareholder employees of S-corporations). For larger corporations, employer contributions are treated as employer-provided coverage for medical expenses under an accident or health plan.

May employers make matching contributions?

In general, employer matching contributions would likely violate comparability testing (i.e., they must make comparable contributions for all eligible individuals with comparable coverage during the same period). However, matching contributions through a section 125 cafeteria plan are not subject to comparability testing (but section 125 nondiscrimination rules would apply).