What should you know about health savings accounts for small business before opting for it?

Health insurance premiums are always on a continual upward rise and many small business owners find it unbearable to pay the same. The HSA or health savings account was introduced with an aim to provide a new avenue for people who cannot afford conventional insurance plans.
An HSA is a health coverage plan that pairs a high deductible health plan with a savings account that is tax free for medical purposes. Such an account reduces medical costs for both employers and employees.

Larger companies can afford to pay for employee health insurance due to their large overhead budgets. It was estimated by the wall street journal that large companies spend approximately $6000 a year on health insurance per employee. And health care costs per employee are now $700 per month per employee according to various surveys done by institutions such as the Kaiser family institute and the national association of health underwriters. Almost half of America’s small business owners do not provide any health care coverage at all to their employees.

The average premium for a health coverage plan rose around 9 percent compared to the 2 percent increase in wages and inflation according to the Kaiser survey. Today, employees pay around 30% of the premium and the rest is paid by the company. This is quite an increase from the late nineties. Health insurance plans are also paying much less for ancillary medical services which result in high out of pocket costs.

In such a dreary climate for health care, an HSA can provide lots of benefits. It is used in combination with a high deductible health plan. This results in very less premium costs per annum. If and when the account holder faces a medical emergency, he or she can access the health savings account to pay for the large deductible amount. And any withdrawals or deposits done with an intention to use for medical purposes will not be taxed.

The interest and dividends accrued are tax free or tax deferred. If you do not withdraw any of the funds till your retirement, you will be left with a sizable nest egg which you can rest up on after retirement. It is much easier to draw funds from an HSA compared to an IRA without attracting the tax man. It is a very convenient way of staying covered when you are young and are sure that you will not face any life threatening diseases. And besides providing cover, it will also allow you to save for your retirement.