Open Enrollment 2025 – Health Savings Accounts (HSAs)

Employers who sponsor high deductible health plans (HDHPs) that are compatible with health savings accounts (HSAs) should prepare for open enrollment by:

• Ensuring that employees understand how HSAs work, including the benefits of opening an HSA; and
• Updating their HDHP’s design and communicating any plan changes to employees.

There are many advantages to selecting an HDHP/HSA option at open enrollment time—for example, HSAs have three levels of tax savings and HDHPs typically have lower monthly premiums. However, many employees may not be aware of these advantages or understand how the HSA rules apply to them. Employers should help their employees understand key HSA features during the open enrollment process.

In addition, to be compatible with HSAs, HDHPs must comply with IRS limits regarding the plan’s annual deductible and out-of-pocket maximum. The IRS adjusts these limits for inflation each year. Employers should review their plan limits to make sure they comply with the limits for the plan year beginning on or after Jan. 1, 2025.

Communicating HSA Rules to Employees

As part of the open enrollment process, employers that offer HSA-compatible HDHPs should help their employees understand the benefits of opening an HSA and making tax-free contributions. Employees may be confused about the rules surrounding HSAs and may not realize all the advantages associated with these accounts.

HSA Advantages

Open enrollment is an ideal time for employers to highlight to eligible employees the advantages of selecting an HDHP/HSA coverage option. These advantages include the following:

• Lower premiums: HDHPs typically have lower monthly premiums than health plans with lower deductibles, which makes them a cost-effective option for many employees. Employees who enroll in HDHPs can contribute to an HSA to help offset the higher deductible.
• Tax savings: HSAs have three levels of tax savings: (1) HSA contributions can be deducted from employee’s pay on a pre-tax basis, which means they are not subject to federal income and employment taxes; (2) HSA funds grow tax-free; and (3) HSA withdrawals are nontaxable if they are used for qualified medical expenses.
• Employee ownership: HSAs provide more flexibility than other medical savings accounts because they are individually owned accounts. For example, employees keep their HSAs even if they switch jobs. Also, employees can continue to use their HSA money on a tax-free basis to pay for medical expenses even when they no longer meet the eligibility criteria for making HSA contributions.
• Savings opportunity: There is no deadline for employees to use their HSA money. Unused HSA funds roll over from year to year, allowing employees to save for future medical expenses.
• Ease of use: HSA funds can be used on a tax-free basis to pay for a broad range of medical expenses, including over-the-counter medicine and drugs. In addition to their own medical expenses, employees can use their HSAs to pay medical expenses incurred by their spouses and dependent children.
• Open at any time: During open enrollment, employers should encourage their HSA-eligible employees to set up an HSA if they have not done so already. However, an eligible employee can set up an HSA at any time, not just during open enrollment. Also, employees can generally elect to start making pre-tax contributions to their HSAs at any time during the plan year, even if they did not elect HSA contributions during open enrollment. This is an exception to the irrevocability (or “election lock”) rule that applies to most other pre-tax benefits.

Continue Reading to learn more about:

• HSA Eligibility

• HSA Contribution Limits

• Updating HDHP Plan Design

Contact Strategic Services Group for sample resources for communicating HSA rules to employees.