Employee wellness has become a norm at work—at least, for places where people want to work. Looking out for your employees’ well-being is just as important as any professional development or growth. In fact, 9 in 10 organizations offer at least one health and wellness benefit in the workplace, with a health spending account as a key offering.
Curious about what benefits are practical for employers, how much they cost you, and what benefits employees actually want? Let’s go through the ins-and-outs of what a health spending account is, including how it benefits employees, helps you retains great talent, the eligibility for hourly employees, and how it impacts your payroll.
What is a health spending account?
A health spending account, otherwise known as an HSA, is a tax-free account with a set amount of funds that employees can use to pay for out-of-pocket medical, dental, or vision expenses. With HSAs, your employees essentially reimburse themselves the amount they paid for whatever medical, dental, or vision expense they had. Then, the money gets deposited into their account. In some cases, employees can use a debit card tied to their health spending account that takes the money directly from that account, with no need for reimbursement.
HSAs go by a few different names. You might see them referred to as wellness spending accounts, healthcare spending accounts, or wellness budgets. They’re typically a general pool of money set aside by the employer’s insurance that employees can use to spend on anything they want within a set category.
Health spending accounts or wellness accounts can cover:
- Medical expense items ordered by a doctor, like a brace, crutches, or orthopedic shoes
- Paramedical visits for professionals like naturopaths, osteopaths, speech therapists, occupational therapists, or registered massage therapists
- Dental procedures like fillings or polishings
- Vision-care expense items like optometry visits , glasses, contact lenses, or prescription sunglasses
- Health and wellness related items like sports equipment, club memberships or dues, bikes, or home weights
- Mental health supports like psychologists or therapists
How health spending accounts work
Health spending accounts are employer funded, with a set amount for each employee. It’s separate from any formalized benefit plan an employer may already provide. It can be complementary to other benefits, or some employers may just bucket everything into an HSA and let the employee decide how to spend the money. A lot of employers like the flexibility of not needing a formalized benefit plan to get HSAs for your employees.
When you combine a general benefits plan with an HSA for your employees, it gives them more flexibility as well. For example, let’s say your benefit plan offers 80% of vision care for your team members, but you also give them an HSA. Their optometrist appointment runs them $200, meaning they’re out-of-pocket about $40. With an HSA, they could apply those dollars to the remaining $40.
HSA as a compensation package
HSAs are often added as a part of an employee’s total compensation package. In addition to their hourly wage or any equity available, a health spending account amount is added on top. This is important to remember when it comes to payroll calculations and tax-time.
A lot of this development is driven by the employees themselves. Today, a vast majority of workers expect their employers to support better work-life balance. While not all employers are able to off flexible work schedules or ample time off, one way employers can do that is by providing benefits.
Making sure employees have access to health and wellness benefits is top of mind for many employers. And not just because wellness programs and accounts improve the working and personal lives of employees, or serve as a great return on investment in the workplace.
Having wellness programs or access to a health spending account (HSA) helps recruit and retain an employer’s top talent. Over 80% of employees reported increased productivity and performance in their job because of an employer’s support of their wellness and mood.
Many potential employees and current workers see a health spending account as a crucial offering to their overall compensation package.
Think it’s just salaried staff looking out for this? Think again. Even hourly workers seek out positions that provide a health spending account or any kind of benefit package.
What are the benefits of providing your employees with a health spending account?
Health spending accounts are a really important signal to employees that you care about their well-being—both in the workplace and and outside of it. 87% percent of employees consider an employer’s health and wellness benefits or wellness programs before joining a company. Even small businesses are known to have health or wellness benefit plans and spending accounts to ensure their employees’ well-being is prioritized in a meaningful way.
For yourself as an employer, there are a number of key benefits. Not to mention, there’s a real return on investment if you provide your employees with a health spending account. But first, let’s start with the benefits for your employees—pun very much intended.
Helps employees avoid burnout
Burnout is defined by an employee’s exhaustion and lack of motivation in the workplace. They feel overwhelmed, stressed out, and negative about their position and life in general.
And while it certainly existed before the global pandemic, the event changed the fabric of our working and professional lives. For most workers, it accelerated pre-existing stressors in a major way. The majority of those feeling the pinch of burnout? Gen Z and millennials, both of which are the prime working age groups.
Look, health spending accounts can’t reverse burnout. But what an account can do is provide your employees with the financial independence and time to take care of themselves. And that in turn boosts their mood and morale. Around 80% of employees who engage in taking care of themselves are likely to enjoy their job and remain there for some time.
Not every employee needs the same kind of health or wellness care. One of the important ways to keep employees engaged in taking care of themselves is to offer a program or account where they determine how their treatment or care is provided or paid for. A health spending account is really great for this. The parameters are broad enough for coverage, and your employee themself can determine where and how to spend that money.
While most employees will look to use their HSAs, not all of them will. Luckily, you’ve got options. Some HSAs can roll over to the next calendar year, allowing your team to plan for life occurrences a little more easily. Then, any unused funds from the previous year are forfeited when another new calendar year rolls over.
For example: say an employee uses $2,000 of their $3,000 allotted health spending account. That leftover $1,000 can be used during the next calendar year, bringing their total to $4,000. But if it remains unused by the end of the year? The total previous amount is forfeit and the balance is brought back to $3,000.
Promotes a healthy work-life balance
Health spending accounts by their very nature promote a healthy work-life balance. This is something many employees today search out while on the job hunt. Does their future employer care about their employees enough to provide any type of benefits? Employees want to know that they have the time and benefit access they need in order to take care of themselves.
Sometimes a job is just a job for a person, and that’s okay. Because it’s important that they care enough to ensure the business runs smoothly, they need to make sure their health won’t suffer for it, and when they leave their work for the day, they can really leave it all at work.
Cost-effective for employers
We’ll say it for the people in the back: health spending accounts cost less than a larger benefit package or plan. With a health spending account, employers set an amount for their employees, which they can use all of in a calendar year, or have any unused funds rolled over into the next year. A set amount for every employee is particularly helpful for small businesses managing cash flow and operational budgets.
Existing medical conditions are covered
Because a health spending account gives employees more control and flexibility over how they can allocate and use their funds, it means that any pre-existing medical conditions that might not be covered with a benefit plan won’t be an issue here. As you aim to be fully compliant with any HR and government regulations, this is a big one. It means your staff don’t have to disclose personal ailments to you, and you can be more inclusive of various abilities. For example, one employee may not need that speech therapy offered in a general package. But they do require expensive orthotics to help them with their standing shift in your retail store. This lets them use the money the way they best see fit.
Covers unexpected medical expenses
Healthcare needs are unpredictable, but a health spending account can be used for cases of emergency to alleviate costly medical expenses. Just as it’s beneficial to give your employees flexible wellness care, it can also be a massive financial lifesaver.
HSAs are complementary with existing benefit plans. If that’s something you offer your employees, the HSA can help cover any lingering costs or fully pay it out if need be. Financial worries are a top stressor for people, and a health spending account can help lessen that.
Retention and recruitment
Employees today look for more from their workplaces than just compensation. Wellness accounts are crucial levers for businesses to pull in the hope of keeping the stellar talent they already have, or as a recruitment technique for employing future superstars.
Employees need to feel like their needs are taken care of, and that includes their health and wellness. Health spending accounts are tax-free funds that don’t count as traditional compensation on a paycheck, but provide reimbursement for any health or wellness related purchase made by an employee.
Having those funds covered goes a long way. Put bluntly, a lot of healthcare costs and maintenance aren’t cheap, either with benefits or without.
By providing your employees a health spending account, you’re telling them you care about their ability to afford and receive the care they need. And this attention to employee needs pays off in the workplace. It makes for happier and healthier employees who are more productive, and less likely to contribute to a turnover rate.
What’s the difference between health and wellness spending accounts and benefit plans?
A health spending account sometimes goes by different names. But there are differences between health spending accounts and wellness spending accounts. Even traditional, fixed benefit plans are different from what health spending accounts offer.
Health spending account
A health spending account lets you reimburse yourself from a pool of set funds for medical, dental, or vision-related expenses.
Wellness spending account
A wellness account—sometimes known as a lifestyle spending account—is very similar to a health spending account. It’s a pool of funds set aside for employees to use and reimburse themselves, but also for purchases that aren’t medical or dental in nature.
Often, wellness spending accounts are set up for general expense categories like:
- Family care such as childcare, child programs or travel expenses related to family care
- Fitness like equipment for working out, sports, or fitness memberships
- Professional development like tuition fees for courses, books, or tutoring
- Financial contributions like allocating money into a retirement fund
- Pet care including veterinarian bills, toys, or food
These are just a few of the expense categories that wellness spending accounts can cover. What’s covered is determined by the employer or provider.
Benefit plans and packages
Benefit plans, on the other hand, are a more traditional group insurance option provided by employers, with employees contributing a certain small amount of money from their pay each week or month. These can include health, dental, and vision, though they don’t always contain all three. Employees can select tiers of coverage with the amount from their paychecks increasing.
Additionally, benefit packages can include benefits around short or long-term disability and life insurance coverage. Benefit plans like these don’t cover wellness spending account categories and strictly remain medical, dental, or vision-care related.
Benefit plans for employers include a policy number or a contract with a particular provider that allows for a certain percentage of healthcare coverage. For example, mental health could be part of a benefit plan, but covered up to 80% of the cost with an employer paying out of pocket for the other 20%.
Often, employers will offer a mix of benefit options for employees, which may include a traditional benefit plan with a health spending account. Or, just health and wellness spending accounts for greater employee control over where their benefit funds go.
Can you offer your hourly employees both benefits and a health spending account?
Short answer? Yes, you can. In the U.S., a health spending account is permissible for anyone who has a qualified high-deductible health plan, according to the IRS.
Healthcare and insurance costs are rising. Offering a variety of health and wellness options for your employees, especially and even your hourly wage workers, will help retain that talent.
A benefit plan and health spending account are complementary components for the overall wellness and care of your employees. You can decide on the depth and breadth of that coverage based on what the business can afford, but having one with the other adds flexibility for your employees to manage their health their way.
How does a health spending account impact your payroll?
Health spending accounts are funds available to your employees in addition to what they already make. It’s an option for your employees as part of their total compensation package—not part of a benefit plan that comes off of a paycheck. It’s important to factor that in when budgeting for expenses like employee pay and calculating payroll.
For example: an employee makes $60,000 a year as their salary, but they have a health spending account amount of $5,000. That would bring their compensation total to $65,000.
For small businesses with fewer employees, this makes a difference when accounting for budgets and expenses. If you forget to include the amount your employees have for their health spending account into their salary or wage amount, then that’ll become a headache at tax-time.
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Health spending account FAQs
What is a health and wellness spending account?
A health spending account (HSA) is a tax-free account with a set dollar amount employees can use to pay for out-of-pocket medical, dental, or vision expenses that are reimbursed.
Is a health spending account a good recruitment technique?
Health spending accounts are a good recruitment strategy because they signal to a potential employee that you care about how they take care of themselves. Today, employees are increasingly discerning about where they’ll work based on what’s offered as part of their total compensation package—and that includes health and wellness benefits and perks.
Can a health spending account be a part of your employee retention strategy?
Yes, a health spending account can be an excellent part of your employee retention strategy. One of the biggest concerns facing both employers and employees is burnout. With burnout—typically defined and diagnosed by extreme exhaustion, stress, and poor health as a result—your employees are going to be working against themselves and the business. Productivity will decline and overall employee happiness.
A health spending account is a great way to prioritize employee health and well-being, and better manage a work-life balance.