Is the contribution deferred until offset with claims? If an employee leaves before using the full contribution, is it then expensed (like an accrued vacation payout)?
When an employer contributes to an HSA up front, how is it recorded on the company's books?
Answers
In an HSA situation, an employer contribution does not revert to the company if unused after some specified point in time. We expense it to benefits expense.
The contribution is made to the employee's HSA, just as an IRA contribution is made to an employee IRA. Once it is made, it is the employee's, regardless of current employment status. So it is immediately expensed - or, in the case of an annual contribution made at the outset of the benefits plan year for all employees, the expense may be amortized over the 12 months of the plan year, provided the amount is material enough to warrant such treatment.
Betsy and Susan are correct, once made the employer contribution is the employee's. This may be an opportunity to review the HSA plan relative to employer contributions and determine if it makes sense to make the employer contributions on a monthly basis.
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So, another company goes to making employer contributions to an employee's HSA account. This can be fraught with peril. And, it somewhat violates the intent of HSAs in the first place.
We chose to contribute maximum allowed amounts to employee's HSAs when we moved to high deductible health care as a way to soften the blow. But, many managers "sold" the idea to skeptical employees with, "we're covering your deductible by contributing to an HSA for you". No incentive for employee to control their health care costs. And, an expectation that their health care was 100% covered by the employer.
Plus, many employees remained covered by their spouse's non-high deductible plan which gave them "
Then, as happens in life, divorces, marriages and even employees marrying within the organization threw some curves at us we had to deal with. Do you up the contribution because they got married before the next open enrollment period? Can you cut the contribution if they get divorced? What about the coverage they are legally required to maintain for their dependent offspring when they do get divorced?
Do you contribute when an employee is off for an extended period? There are requirements for health care coverage to continue. What about the HSA contribution.
The regs are not that clear about such matters. And, there are tax bites that can easily hit unwitting employees which makes them suspicious of the employer's intent in going to such plans.
And yes, for the first year of change, we chose to pre-fund and entire years worth of contributions against my strenuous objections. And, as I predicted, there were employees who left, $6,000 tax free richer for it on their way to a new job.
More than one employee ended up expending their entire HSA balance on medical care for a spouse and then demanded that we give him more. No amount of explanation could make him understand why that was not our responsibility. Worse, a couple of execs wanted to do so because this was a valued employee!
Talk about making a
We had at least one employee buy a cruise with her employer funded HSA account and brag about it. This caused a lot of dissension among the ranks that no amount of explaining the taxes and penalties that would be do could overcome.
I used to think that HSAs with their companion, high deductible health care plans were a good first step to get people to think about their health care choices and costs and move us towards being a "smarter" society. Now, I'm not so sure. Our move to high deductible with HSA contributions backfired on us somewhat.
I find it interesting that companies want to contribute up front. When we increased our deductibles from $3500 to $5000 we set up an HRA that would pay out if an employee hit the $5,000 deductible we reimbursed $1500. This way the liability to the company is only realized when someone reached their limit.
Why would you ever put all of the money in up front? Why not put it in monthly, or, at most, quarterly? I am only a proponent of an HSA where there is a highly or reasonably-compensated employee, where they can benefit from a tax angle. The employees at the low end will be reluctant users, so it will not be a motivator for employee morale.
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Because we are government. And, in government employ, the decision makers on compensation are usually the beneficiaries as well. One might say there is a bit of self interest involved that results in self dealing.
And, because telling employees that we were contributing up front that first year (I've since gotten it changed to a monthly contribution after the results I outlined above) was a sales tool. The employees were getting very nervous when we told them their health care deductibles would be rising from a few hundred per year to $6,000 per year. The up front contribution was a way of smoothing this over.
However, as I said before, it also fed the entitlement mentality that, we as an employer, were responsible for the cost of their health care.
In my book, it was a missed opportunity to counter that attitude and teach them that they had a role in controlling their health care costs and that any part of those costs, insurance premiums or HSA contributions, that we covered as an agency, were a fringe benefit of employment there and not guaranteed for life as they seem to assume. Actually if you asked most rank and file, even before the ACA, they would have told you that "the government" required us to provide health care for them.
In my book, it's a sad state of affairs. In our own situation, it is unsustainable but the CEO will not hear of it.
Dabney,
Fortunately that wasn't the case for us. The younger newer employee's were thrilled to get the reimbursement. They had forgotten about the HRA and when reminded couldn't wait to turn in the paperwork. $5,000 deductible is way too much for most people to absorb.
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Christie:
Over the long run, how will your employer afford this?
Our cost of health care per employee runs from a low of about $12,000/yr to a high of more than $24,000/year. And, we have little turnover so the employees are aging in place.
Those costs have been escalating by more than 5% per year. Sometimes 10%! Over the long run, it is going to impact our ability to operate. In fact, it already has although no one at the top wants to admit it.
We are introducing HSA this year and the uptake is much greater than anticipated. We are also mitigating
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Do you have employees picking up at least part of the cost of their own health care insurance? If so, I'd suspect that the uptake is because people don't fully understand what is or will happen. All that they see is a lower premium contribution on their part.
Financially at least, people can be so short sided.
Yes, the employer contribution picks up only a portion of the deductible. We added HDHP-HSA for the new plan year but retained HDHP-HRA for reasons unknown to me since I don't sit on the benefits committee.
Anonymous, the employer cost for HDHP-HSA, including the contribution, is projected to be substantially lower than the costs for the traditional plans that we still offer. This is based on a calculated "premium" since we are self-insured. It will be interesting to monitor claims performance, lag report and fund balance.
Ken:
I've analyzed our savings from the HDHP-HSA transformation. I did so because I was sure we were actually paying more with that maximum annual employer HSA contribution. But, there was a savings. It was about 1%. ;-(
We are not self insured.
How are you handling employee status changes during the year? Marriage, divorce, FT to PT, etc.?
What about married employees (both at your firm with coverage)?
How do you deal with employees who retain non-HDHP coverage from a working spouse's plan and thus, end up with tax and penalties on the employer HSA contributions every year?
Employer contribution is made at the beginning of each quarter, so an employee who gains eligibility mid-quarter will receive the first employer contribution at the beginning of the next quarter. Likewise, someone who loses eligibility will not receive the next contribution. There is no claw-back, as it has already been pointed out that it is the employee's money when contributed.
Married employees have to figure out which coverage is optimal for them as well as how to avoid tax penalties. Mention was made of these issues during open enrollment but I don't know how much advice or other assistance our benefits folks are providing. That's an
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Human Capital