Create valuable incentives with HSA matching

No one wants to leave free money on the table. That's why incentivizing employees with an HSA match can be an effective strategy to increase use and satisfaction of an HSA-qualified health plan. To best maximize the value of your matching program, keep the following ideas in mind:

HSA Matching

HSA matching can be offered to employees who participate in funding their own HSA and increases their ability to save for future expenses. Employee contributions go in pre-tax, meaning they don't pay taxes on those funds. As the employer, you may match a certain portion of the contributions, and those contributions also go in pre-tax. If employees choose not to make contributions, they miss out on the benefit of the matching contribution as well.

Most employees are familiar with the concept of matching contributions thanks to other retirement programs like a 401(k). Still, you should carefully communicate the details of your specific matching program to avoid misunderstanding. For 2018, the annual contribution limit is $3,450 for individuals and $6,900 for families. Keep in mind this limit is inclusive of both employee and employer contributions.

Here are some examples of matching scenarios you might consider:

Percentage match - In this scenario you contribute a percentage of the amount your employees contribute up to a specific threshold. For example, if you match 50% of employee contributions up to a $500 maximum, you would put 50 cents into an employee's HSA for every $1 they contribute. Once the employee has contributed $1,000 (and you matched up to $500), the employer matching would cease.

Dollar for dollar match - With dollar for dollar matching you contribute at the same rate as the employee up to a given threshold. For example, if you match dollar for dollar up to $500, you would put $1 into an employee's HSA for every $1 they contribute. Once the employee has contributed $500 (and you matched up to that same amount), the employer matching would cease.

With either of these methods you could restrict the rate of contribution further by month or quarter, etc., but you need to make sure you are treating all employees equally. If you are considering a more complex matching program, especially one that treats employee segments differently, you should work with a legal expert to ensure you are not being discriminatory.

Tax advantages

The triple-tax advantage of an HSA makes it a great option to use for health expenses now and to save for healthcare expenses in retirement. The great thing is that employer contributions into your employee's HSA are tax-free as well. The tax savings from both you and your employee's HSA contributions combined with savings in premium by enrolling in an HSA-qualified plan can help alleviate the perceived drawback of higher deductibles. As an employer, you can offer HSA matching contributions to incentivize employees to contribute and save even more. Remember that HSA contributions deducted from payroll on a pre-tax basis can save you a portion of FICA taxes (7.65%) as well.

1. HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-free with very few exceptions. Please consult a tax advisor regarding your state's specific rules.

2. Investments available to HSA holders are subject to risk, including the possible loss of the principal invested and are not FDIC insured or guaranteed by HealthEquity, Inc.

3. It is the member's responsibility to ensure eligibility requirements as well as if they are eligible for the plan and expenses submitted. One should consult a tax advisor as individual factors and situations vary.

Nothing in this communication is intended as legal, tax, financial, or medical advice. Always consult a professional when making life-changing decisions.