Forget the Big Beautiful Bill. Your Employees are missing what’s already in Front of them.

Jon Cauble, Health and Benefits Compliance Officer, Pinnacle Financial Partners

Jon Cauble, Health and Benefits Compliance Officer, Pinnacle Financial Partners

Recently, the employee benefits community has been laser-focused on potential improvements to health savings account (HSA) rules that were proposed in early drafts of the House Budget Reconciliation Bill. Unfortunately, many of those provisions were struck by the Senate during its review and were not resurrected when the House passed its final vote.

What may be even more important to employers and their employees, however, are provisions and abilities that have long been available through HSAs but are woefully underutilized.

Full disclosure, I was not originally sold on the HSA concept. But once I began using the HSA myself, understanding and realizing the long-term savings potential, I changed my tune. It’s time for all HSA account holders to do the same.

Max Out Contributions, Save on FICA

By now, I’m sure you have heard the HSA “triple tax advantage” catchphrase, but I am not convinced this buzzy slogan is landing with the employee audience. According to several industry trackers, most HSA accountholders fall short of the annual contribution maximum, and only 15 percent of accountholders invest their HSA, according to the nonpartisan employee benefit research institute (EBRI). To me, if two of the three “advantages” aren’t being advantaged, that’s a missed opportunity.

Since I’m the first to admit that I’m a novice investor at best, I will leave that talking point to someone with more expertise. Besides, before investing in the HSA, you must contribute to it! In the same data, EBRI noted that average employee contributions by the end of 2023 had increased to $2,075, but this still fell $1,775 short of the maximum $3,850 eligible for that year (the maximum increases for 2024, ’25 and ‘26). The simplest way employers can advocate for HSAs is by encouraging employees to maximize contributions through a pre-tax cafeteria plan (whether their own contributions or combined with employer contributions). This is nothing new in the HSA sales pitch, but the hard data shows the potential:

• Assume 50 employees are eligible to contribute to an HSA,

• 50 x $1,775 = $88,750 in missed contributions,

• $88,750 x 15.3 percent (FICA tax rate) = $13,578 in additional FICA taxes paid (split between employer and employees)

Whether you are an employee or an employer, maximizing contributions makes an impact!

For Older Workers

Briefly, one proposed rule change would have allowed individuals entitled by age to Medicare Part A to continue contributing to HSAs. Under the current law, once an individual turns 65 they are automatically entitled to Medicare Part A and automatically disqualified from contributing to an HSA even if they are otherwise eligible under a High Deductible Health Plan (HDHP).

Why is this a big deal?

According to the Social Security Administration, the average retirement age is around 65 for men and 63 for women. However, the administration’s full retirement age (FRA) (the age at which an individual can claim full Social Security benefits) recently increased to 67 for anyone born after 1960. Doing the math on these numbers: 2025 – 1960 = 65, means many older employees have not yet reached FRA status and my guess is that they are likely to keep working for at least two more years to maximize their SS benefits. I am not an insurance actuary, but I would also guess that these employees are more likely to keep their existing coverage under the employer’s group health plan rather than switching to Medicare before retirement. If the average retirement age trends upward and older employees stay on employers’ group health plans, these employees will be adding to the company’s health expenses.

While the legislative change would not have directly defrayed those added healthcare costs, an employee maximizing contributions from ages 65-67 would save an additional $15,900 to use against their health care expenses (assuming the maximum stays the same $4,300 for individual coverage plus the $1,000 catch-up contribution permitted starting at age 55). Plus, the FICA tax savings could cut into the employer’s cost. I don’t know anyone who wishes they had not saved another $16,000 for retirement or medical expenses.

Legislative changes may be hard to predict. But the advantages of fully contributing to your HSA are not: shortand long-term tax and health care savings for employees, combined with FICA savings for employers, is a win-win.