BBB Small Business Advice on Health Savings Accounts

October 30, 2008

Video Player image of man reading from a folderRising healthcare costs are forcing small business owners to decide whether or not they can afford to provide health coverage for their employees. Some employers are choosing to contribute to Health Savings Accounts (HSA) for employees as an alternative to paying for health insurance, and Better Business Bureau is providing guidance for small business owners on whether HSAs could be a viable option for their company.

According to a recently released Kaiser Family Foundation study, in 2008 employer-sponsored health insurance for a family cost an average of $12,680—a five percent increase from 2007—with one-fourth of that cost paid by employers. While the cost of healthcare is high now, there’s more bad news for business owners in the future. Unfortunately, it appears that employer healthcare costs are only going to increase, according to a Hewitt Associates study that estimates costs are expected to rise 6.4 percent in 2009.

“Employers have found that providing health insurance is an effective way to attract and retain a quality workforce, however, the rising cost of healthcare is making it harder for businesses to provide that incentive,” said Jocile Ehrlich, BBB C.E.O. “Health savings accounts are an alternative for cash-strapped businesses to trim healthcare costs while still providing healthcare incentives for employees.”

According to a 2008 report from the United States Government Accountability Office, the number of individuals covered by HSA-eligible plans increased significantly between September 2004 and January 2007—from about 438,000 to approximately 4.5 million.

Following are some guidelines and background information from BBB on HSAs:

The Basics
HSAs were established as part of the Medicare Prescription Drug Improvement and Modernization Act of 2003. HSAs are designed as an account into which both employers and employees can make tax-free contributions. The accumulated money is the property of the employee and is used to pay for medical expenses. 

In order for employees to maintain a Health Savings Account they must also be part of a high-deductible healthcare plan and cannot be covered by other health insurance (dental, vision or disability is permissible, however).

Tax Incentives
Employee contributions to an HSA are above-the-line tax deductions. As well, earnings such as interest and dividends are tax-exempt. Withdrawals from the accounts are tax-free as long as the money is used for medical expenses.

The maximum contribution for an HSA is $2,900 for single coverage and $5,800 for families. Business owners can contribute to their employees’ HSA at any point and in any amount, however they must make comparable contributions to all participating employees. Contributions do not have to be the same for part-time versus full-time employees.

Administrative Costs
Another benefit for small business owners is that there are minimal administrative costs associated with HSAs since the accounts are self-administered by the employee.

Getting Started
Small business owners can learn more about HSAs on the U.S. Small Business Administration’s (SBA) Web site at SBA also recommends small business owners go to,, and for assistance in finding qualified HSAs and determining eligibility for coverage.

Small business owners can find more trusted advice on a wide variety of topics from BBB at

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