HSA Benefits Leading to Increased Participation
HSA Benefits in the form of High-deductible health plans (HDHPs) are gaining in popularity. HSA Benefits are viewed as a way for employers to offer employees a lower-cost healthcare benefit, as well as cut healthcare-related expenses themselves. Another benefit of HDHPs: they offer employees access to triple-tax-advantaged health savings accounts (HSAs).
HSAs are an attractive benefit due to the fact that workers can make pre-tax contributions. In addition, they don’t have to pay taxes on withdrawals for qualified healthcare expenses. HSA Benefits also offers an investment component, and the earnings on those investments also grow tax-free.
Despite the awesome tax advantages, for a majority of the more than 25 million HSA account holders, current healthcare needs to take priority over investing, according to a recent article in Employee Benefit News. According to an EBRI study cited by EBN, 96% of account holders don’t invest any portion of their balance. Put another way, that means just 4% are taking advantage of all three tax advantages offered by HSAs. Indeed, HSA Benefit account holders typically fall into two buckets: spenders and savers. Three-quarters of HSA Benefit users are spenders.
Given that such a small percentage of employees are taking advantage of the ability to invest in their HSA Benefit accounts, employers are faced with the challenge of getting employees to not only to use their HSAs to save, but also to grow their money inside those accounts for the future. It’s similar to the challenge employers face when it comes to getting employees to save and grow their wealth for retirement.
EBN offered up a few suggestions for employers to maximize employee participation in HSAs:
Encourage employees to contribute, and increase their HSA benefit savings: According to the EBRI study, only half of the account holders put money into their HSA Benefit in 2017. Slightly less than 40% of accounts received no contributions, including employer dollars. However, employer matching contributions can incent employees to save in their HSAs while helping them meet the out-of-pocket healthcare expenses of a high-deductible plan.
Speaking of, employees also have anxiety around meeting those out-of-pocket costs. One way for employers to assuage that concern is by allowing employees to borrow from future HSA contributions. This means that if an employee incurs healthcare costs that exceed their HSA Benefit balance, they can take an advance on future contributions to pay for those out-of-pocket expenses. The employer provides the funds upfront, and the employee repays them through payroll deductions. This can act as a “safety net” for new HSA account holders or those with small balances, EBN noted.
Give employees the opportunity to max-out their HSA Benefits. Fewer than 20% of employees fully fund their HSA Benefits. So, there’s room for improvement. While not all employees have the ability to make additional contributions to their HSA, employers can remind them about the tax advantages and its portability in an effort to entice them to protect themselves against healthcare costs.
Educate employees on how to save on healthcare costs. Help employees who are paying for care before meeting a high deductive to spend their HSA Benefit dollars wisely. If you offer it, encourage them to use to telehealth benefits, and remind employees of the most appropriate places to seek care, i.e., urgent care instead of the emergency room. Encourage employees to embrace preventive care, including physicals, screenings, and routine immunizations. If you offer a wellness program that includes bloodwork and biometric testing, ties it into your healthcare communications. Employees can get a lot of care at no cost, but employers need to remind them it is available.
Don’t over-emphasize HSA investing. While HSA investing provides great tax advantages, most employees aren’t there yet. Too much focus on the HSA’s investing component can turn employees off to the benefit. While HSA Benefits are indeed a great savings vehicle for retirement and related healthcare costs, employees may not understand that. In fact, they may shy away from using the benefit because they think it isn’t for them. Emphasize the benefits HSAs offer when it comes to funding current healthcare costs and being able to save for those costs on a tax-advantaged basis. The flexibility of being able to use the funds to pay for a wide variety of healthcare costs is also an attractive way to position HSAs to employees. Talk about the investing aspect, just don’t make it a primary area of focus, according to EBN.
HSA Benefits is a great tool to help employees save for and pay for near-term healthcare costs. Some are even beginning to use it as a way to invest in the future, and that’s a trend that may grow as more employees understand the benefit of using their HSAs for long-term savings. At present, employers should focus on educating employees about the HSA benefit and tax advantages of HSA Benefits, and help them to maximize their contributions and spend their HSA dollars wisely.