The looming deadlines for implementing many key Patient Protection and Affordable Care Act (PPACA) provisions have many of your clients wondering how they can cushion the impact of the rising premium costs they fear will accompany them. Some clients have begun to hear rumors of their employers switching to plans with high deductibles — with correspondingly lower premiums for the employer — to avoid the so-called "Cadillac Tax." Whether your clients fear direct premium increases or higher annual deductibles, their out-of-pocket costs can be slashed using a tax-preferred vehicle that has been on the market for years: the health savings account (HSA).
Pre-tax contributions, coupled with tax-free earnings and withdrawals, make HSAs a powerful tool for covering the rising costs of your clients' health coverage. They also have the added bonus of reducing taxable income in the process.
PPACA's impact
Within the next four years, companies will become subject to an excise tax if they offer health care plans that cost more than $10,200 per individual employee or $27,500 for family coverage. This Cadillac Tax has many employers looking for ways to lower the cost of the health care options they currently offer employees, and the solution commonly involves switching over to plans with lower premiums and correspondingly higher deductibles (known as HDHPs).
This means that your clients who currently have comprehensive health coverage provided at little cost to them will soon be required to pay for more of their health care out-of-pocket before insurance coverage kicks in. Because a $5,000 deductible may soon become common, these clients will need an alternate solution to help lessen the burden.
Self-employed and small business clients have similar fears regarding the widespread perception that they'll see higher premium costs once the health insurance exchanges open late in 2013. These clients are similarly likely to resort to HDHPs to control premium costs though their out-of-pocket costs will rise through the high deductible that must be paid before coverage begins.
HSAs and HDHPs
HSAs were created as a supplement to HDHPs and, as HDHPs become more prevalent, clients should be made aware of the importance of taking advantage of an HSA to control out-of-pocket health expenses. For 2013 and 2014, an HDHP is a plan with an annual deductible of not less than $1,250 for self-only coverage or $2,500 for family coverage. Annual out-of-pocket expenses in an HDHP cannot exceed $6,350 for self-only coverage in 2014 ($6,250 in 2013) or $12,700 for family coverage ($12,500 for 2013).
