Employers offering high deductible health plans (HDHPs) that are compatible with health savings accounts (HSAs) should start preparing for open enrollment. It’s crucial to ensure that employees understand how HSAs work and the benefits of opening an HSA, as well as updating their HDHP’s design and communicating any plan changes to employees.
Educating Employees on HSAs
Open enrollment is an excellent opportunity to educate employees about HSAs. Many employees may not be aware of the significant advantages of choosing an HDHP/HSA option. HSAs offer three levels of tax savings and HDHPs typically have lower monthly premiums. Employers should help their employees understand key HSA features during the open enrollment process to make informed decisions about their health coverage.
Key HSA Benefits to Highlight:
1. Lower Premiums: HDHPs generally have lower monthly premiums than plans with lower deductibles, making them a cost-effective option. Employees who enroll in HDHPs can contribute to an HSA to help offset the higher deductible.
2. Tax Savings: HSAs provide triple tax savings:
- HSA contributions can be deducted from an employee’s pay on a pre-tax basis, reducing federal income and employment taxes.
- HSA funds grow tax-free.
- Withdrawals from HSAs are non-taxable if used for qualified medical expenses.
3. Employee Ownership: HSAs are individually owned, meaning employees retain their accounts even if they change jobs. Employees can continue using their HSA money on a tax-free basis for medical expenses even when they no longer meet the eligibility criteria for making HSA contributions.
4. Savings Opportunity: There is no deadline for using HSA money. Unused HSA funds roll over from year to year, allowing employees to save for future medical expenses.
5. Ease of Use: HSA funds can be used tax-free for a broad range of medical expenses, including over-the-counter medicines. Additionally, employees can use their HSAs to pay medical expenses incurred by their spouses and dependent children.
Download our free HSA e-guide here.
HSA Eligibility Requirements
Employers should ensure employees understand HSA eligibility rules to make informed decisions during open enrollment. The rules are strict and include:
- Being covered by an HDHP.
- Not being covered by other health insurance that is not an HDHP, including traditional health flexible spending accounts (FSAs) or health reimbursement arrangements (HRAs), with limited exceptions.
- Not being enrolled in Medicare.
- Not being claimed as a dependent on another person’s tax return.
HSA Contribution Limits for 2025
During open enrollment, employers should communicate the HSA contribution limits to employees. These limits are adjusted for inflation annually and vary based on whether an employee has self-only or family coverage under an HDHP:
- $4,300 for individuals with self-only HDHP coverage.
- $8,550 for individuals with family HDHP coverage.
- Individuals aged 55 or older by the end of the year can make additional “catch-up” contributions of $1,000 annually.
Updating HDHP Plan Design
To prepare for open enrollment, employers should update their HDHP design to ensure compliance with the IRS’s adjusted cost-sharing limits for 2025. Key points to review include:
- Minimum Deductibles and Out-of-Pocket Maximums: For 2025, the minimum deductible for self-only coverage is $1,650, and $3,300 for family coverage. The maximum out-of-pocket expense limits are $8,300 for self-only coverage and $16,600 for family coverage.
- Expiration of Certain Benefits: Employers should note that benefits for COVID-19 testing and treatment and telehealth services before the deductible is met are expiring. HDHPs will no longer be permitted to cover these services without meeting the minimum deductible starting in 2025.
Communicating HSA Rules to Employees
Effective communication is essential for helping employees understand the benefits and rules of HSAs. Employers should provide clear information and resources during open enrollment. Tilson HR can offer sample resources to aid in this communication, ensuring employees fully grasp the advantages and operational rules of their HSAs. In addition, Tilson offers an Employee Benefits Resources webpage providing access to articles, videos, and tools related to employee benefits.
Download our free Employee Communication Strategy Checklist here.
COVID-19 and Telehealth Coverage Adjustments
With the end of the COVID-19 public health emergency, health plans are no longer required to cover COVID-19 diagnostic tests and related services without cost sharing. For plan years ending after December 31, 2024, HSA-compatible HDHPs can no longer provide benefits for COVID-19 testing and treatment without a deductible. Employers should:
- Confirm HDHP compliance with new cost-sharing rules.
- Communicate any changes regarding COVID-19 testing and telehealth benefits to plan participants through updated summaries.
Conclusion
Open enrollment for 2025 presents a prime opportunity for employers to enhance their employees’ understanding and utilization of HSAs. By effectively communicating the benefits and rules of HSAs and ensuring HDHPs comply with IRS regulations, employers can help their employees make the most of their health coverage options. Tilson is here to support your open enrollment efforts, providing the expertise and resources needed to ensure a smooth and informative process. For more information on health care plans, contact Tilson today.
