In recent years, Health Savings Accounts (HSAs) have become the darlings of benefit departments everywhere—and for good reason. These accounts, connected with consumer-driven, high-deductible health insurance plans, offer some attributes you won’t find elsewhere.
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First and foremost, employees use the funds in their HSA accounts to pay out-of-pocket health care costs with pretax money. And similar to pretax retirement savings accounts, the money grows tax-free. But, unlike their retirement counterparts, the money saved in an HSA also comes out without tax consequences, as long as withdrawals are for qualified medical costs.
Also similar to a 401(k) or similar retirement plan, HSA funds can be used in retirement. This advantage is important, considering the ever-increasing projections of the cost of health care during retirement. According to the latest figures from Fidelity, in fact, a 65-year-old couple retiring in 2017 can expect to need $275,000 to pay such costs over their retirement years.
Recently, as the federal government considers changes to the rules around HSAs, Mercer conducted a web briefing discussing HSA trends and developments. By and large, the changes under discussion could simplify a few of the administrative rough spots.
Changes Under Consideration by Congress
For example, Congress is considering a change to the contribution limit ($3,450 for single coverage in 2018) to synch it with the statutory out-of-pocket health coverage maximum ($6,550 for individual coverage in 2018).
They are also considering an expansion of services that account holders could use before the deductible applies. Among these, employees could obtain services for chronic conditions, on-site medical care, direct primary care, and telemedicine services before being required to meet their deductible.
Popularity of CDHP/HSA Combos Increase as Other Plans Decrease
Even as discussions progress, HSAs continue to grow in popularity, especially among the largest employers. Of course, HSAs are only allowed when they are connected with a consumer-driven health plan (CDHP) featuring specific limits.
Mercer’s data shows that, in 2009, about 20% of large companies offered a consumer-driven health plan; by 2017, the figure had more than tripled, to 64%. What about other plans?
During the same time period, Preferred Provider Organizations (PPOs) and Point of Service (POS) plans lost some ground among large employers, from 93% in 2009 to 85% in 2017. A similar trend occurred in Health Maintenance Organization (HMO) offerings, offered by 43% of large companies in 2009 and just 29% in 2017.
As CDHPs gained popularity among employers, employees began climbing aboard, selecting them as their health care coverage. In 2009, only 8% of employees enrolled in a CDHP; by 2017, about 1/3 took advantage of these plans.
The reason for the increase is probably due to premium cost. Mercer’s research shows a significant cost difference between the more traditional PPO and HMO plans and an HSA-eligible CDHP.
For large employers, the average medical cost per employee was more than $12,000 in 2017 for a typical PPO or HMO plan. Higher deductibles made a difference, with a $1,000+ deductible PPO resulting in an average medical cost per employee of $10,747 and an HSA-eligible CDHP running $10,019—including an employer contribution.
As more employees and employees take advantage of CDHPs paired with HSAs, total assets held and invested in these accounts climbs. In 2009, HSA held $7.2 billion. Mercer’s estimates show that, when 2017 figures are totaled, HSA assets will amount to $44.5 billion, an increase of more than 600%.
Savings Result from HDHP/HSA Plans
Results of the 12th Annual Aetna HealthFund study also found positive results from HSAs. The study incorporated data from PayFlex, an Aetna subsidiary company that provides account-based benefits administration.
The PayFlex information found that employees are 2.6% more likely to contribute to an HSA when their employer also contributes. Along with an employer contribution, employee education about the benefits of the HSA is critical. The study suggests taking a thoughtful approach that helps employees better understand how these accounts work, and how they can help provide resources today and in the future.
More findings from the Aetna HealthFund study include encouraging financial data. For example:
- $8.6M in savings over 5 years per 10,000 members
- 3% year-over-year increase in employee contributions when the employer also contributes to the HSA
- 8% lower average annualized trend for the Aetna HealthFund study group as compared to PPO control group.
Addressing Concerns and Challenges
In their webinar, the Mercer experts discussed compliance issues that may concern employers who have or are considering adding HSAs to their benefits menu. One such issue is the automatic enrollment of employees in the plans.
Automatic enrollment is allowed for HSA-eligible employees, according to Mercer. The employer may set a default pre-tax contribution amount, which could be a percentage or fixed amount per pay period. Automatic enrollment may be for the initial eligibility, and may also extend to subsequent plan years. However, employees must be given the right to decline such enrollment.
If you do decide to auto-enroll eligible employees into an HSA, be sure to meet the notice requirements. Employees must be notified about the HSA contribution election process, the amount (if any) of the default contribution, procedures for declining the automatic enrollment or contributions, the timeframe for declining, and information about rolling elections into subsequent years.
An employee’s HSA participation must be completely voluntary. Mercer’s position is that automatic elections, such as those discussed here, should be sufficient to avoid the application of ERISA. They do caution, though, that some states require the employee’s written consent before any withholding from the employee’s pay.
Considering the value of an HSA to the employer and to the employee, it is certainly an option worth considering. We suggest discussing it with your health benefits consultant. He or she can help you decide whether or not to take the leap and, if you do, the best way to communicate the program so that employees are inclined to take advantage of it.