Is It Time to Rethink Your Company’s Health Insurance Strategy? HDHPs and HSAs Could Be the Answer

Towards the end of each year, many business owners (and employees) begin to think ahead to next year’s health insurance offerings. Whether you’re considering adding coverage for the first time or updating your current plan, now is the ideal time to explore your options. One cost-effective and tax-smart approach gaining traction with small and midsize employers is pairing a High-Deductible Health Plan (HDHP) with Health Savings Accounts (HSAs).

At our firm, we work with business owners to assess the financial and tax implications of benefits programs like this — because your insurance strategy should support both your bottom line and your workforce.

What’s the HDHP + HSA Model?

An HDHP is a type of health insurance with lower premiums and higher deductibles. When paired with an HSA — a tax-advantaged account that employees can use to pay for qualified medical expenses — it becomes a powerful tool for cost management and long-term savings.

To be eligible to contribute to an HSA, an employee must be enrolled in an HDHP, have no other health coverage, and not be enrolled in Medicare.

For 2025, an HDHP must have a minimum deductible of $1,650 for individual coverage or $3,300 for family coverage. Employees can contribute up to $4,300 (individual) or $8,550 (family) to their HSA, with an additional $1,000 catch-up contribution allowed for those aged 55 or older. These contributions are pre-tax, and any employer contributions count toward the same IRS limits.

HSA funds can be withdrawn tax-free for a wide range of out-of-pocket healthcare expenses. These include doctor visits, prescriptions, dental care, and even deductibles. However, insurance premiums are generally not eligible.

Why It’s Worth Considering — From a Tax Perspective

For employers, the HDHP + HSA combination can offer significant financial and tax advantages:

• Lower premiums reduce your overall health plan costs.

• Employer contributions to HSAs are tax-deductible.

• A strong benefits package improves employee satisfaction and retention.

From the employee's standpoint, HSAs offer several tax-saving and long-term planning benefits:

• Pre-tax contributions reduce taxable income,

• Account earnings grow tax-free,

• Withdrawals for qualified medical expenses are not taxed,

• Funds roll over from year to year (no “use it or lose it” rule),

• HSAs are portable — employees keep their accounts even if they leave your company, and

• For those thinking ahead: HSAs can act as a supplemental retirement savings vehicle for future medical costs.

Watch Out for the Pitfalls

That said, this model isn’t perfect for every business or employee. HDHPs can feel risky for individuals with high healthcare needs, due to the higher out-of-pocket costs. Employee education is essential — particularly around what expenses are eligible and what the tax penalties are for misusing HSA funds.

Here’s what to keep in mind:

• Nonqualified HSA withdrawals before age 65 are taxed and penalized (20%).

• HSA providers may charge maintenance or investment fees, which employers often choose to cover.

• If the HSA owner passes away, funds transfer tax-free to a spouse, but other beneficiaries may face immediate taxable income treatment.

Let’s Talk Strategy

The HDHP + HSA model can help employers contain insurance costs, offer attractive savings opportunities to employees, and gain valuable tax benefits along the way. But like any business decision, it’s important to weigh the financial impact carefully.

As a CPA firm, we’re here to help you evaluate whether this model fits your company’s goals — and to guide you through implementation if it does. Let’s talk about how you can optimize your benefits strategy for 2025.

Contact us today to schedule a consultation.