For many cost-conscious employers, combining high-deductible health plans (HDHPs) with health savings accounts (HSAs) is the most viable way to protect workers from exorbitant medical expenses.
That helps explain the prevalence of HSAs. Last year more than 25 million had been established in the U.S., a 13% increase over 2017. The same report by Devenir shows assets in those accounts grew 19% year over year to reach a whopping $53.8 billion. The average HSA amount given by employers that contributed? $839.
Not only do HSAs allow employees to sock away tax-deductible money for healthcare costs, but the interest earned and withdrawals made (for qualified expenses) are both tax free. Further, because most accounts are at least partially self-funded, employees tend to watch costs closely by opting for more preventative services and seeking lower prescription drug options, according to research cited in Insurance Journal.
Despite those multiple advantages, some Americans remain confused about the convenient savings vehicles first established in 2004, which is why employers and vendors continue to work together to provide clarity on how they work.
"The growth in HSA usage and assets has been explosive, yet this is still a relatively new vehicle that is widely misunderstood," advises industry exec Jack Towarnicky on SHRM.org.
With that in mind, here are some tips for employers wishing to help their staff members make the most of their HSAs.
- Make employees’ decisions easier by offering no more than three different insurance or insurance/HSA package offerings. Encourage them to estimate their comparative costs (AARP offers a handy tool in that regard) before signing up.
- Let workers know they’re free to shop around for a different HSA on their own if they prefer, as long as they also enroll in some kind of HDHP. HSAs are offered by multiple banks, credit unions and other financial institutions. “Some may offer more generous interest rates and fewer fees than your employer's has,” notes Donna Rosato in Consumer Reports. “Some also offer options for investing your money in stocks or bond funds.”
- Ensure workers understand they can’t lose their investments; HSA deposits roll over from year to year and are completely portable.
- Define which expenses are applicable under HSAs and provide clear instructions on how to spend HSA investments.
- Consider contributing a lump-sum payment at the beginning of each plan year to help employees pay expenses before they’ve accrued bigger balances. Alternatively, you might match employee contributions or require them to meet a certain contribution level before chipping in. Many employers also pay annual administration fees.
- Explain that many Americans take the option of using HRAs to save for health expenses after retirement. In fact, after age 65 holders may use the funds for non health-related expenses, though income taxes will apply. Overall, HSAs are “more advantageous from a tax perspective than saving in a 401(k) plan or other retirement savings plan," according to a 2018 report by the nonprofit Employee Benefit Research Institute. In fact, some analysts recommend investing the maximum amount in your HSA each year, then simply paying for medical expenses out of pocket and leaving the HSA money for later. “As long as you hang on to receipts for health-care costs — those you didn’t use FSA or HSA funds to pay yourself back for and did not count toward the medical expense deduction — you can withdraw the money at any point in the future to reimburse yourself,” advises Sarah O’Brien on CNBC.com.
- Provide employees HSA user guides covering banking, tax rules, eligibility and other key information.
- Encourage employees to sign up for monthly HSA statements and online account portals so they can closely track spending.
- Inform workers that any adult children still covered under their HDHP family coverage (but not claimed as dependents) may be eligible to open their own HSAs.
- Provide employees concrete suggestions on how to control their own medical costs, such as choosing telehealth options first, comparing providers, negotiating bills with providers and avoiding emergency rooms when possible.
Seeking more advice on the best possible health insurance solutions for your employees? Talk to Ochs to learn more about your many options for controlling benefits costs.