Open enrollment is an opportunity to help employees understand the value of a health savings account (HSA), but many employers make common mistakes that undermine their communications efforts.
"Selecting an HSA option with a high-deductible health plan can have a tremendous impact on a family's financial well-being"—a positive one when the HSA is used appropriately—said Jason Cook, vice president and strategic business leader at WEX Health, a health-benefits IT firm in Chicago. "But the reality is most employees are not getting the message about the long-term savings power of an HSA and the financial impact of being a health care saver," Cook said in a webcast on The Importance of HSAs During Open Enrollment.
Design Effective HSA Programs
During the webcast, William Stuart, director of strategy and compliance at Benefit Strategies LLC, a Boston-based third-party administration firm, noted some of the worst practices around HSA programs. These included:
- Employer adds an HSA-qualified high-deductible plan "just to have one."
- Employer provides too little or no employee education around the health plan and HSA.
- Employer apologizes for the high-deductible plan.
An HSA offering with a high-deductible plan "is almost certain to fail if an employer introduces it as a reaction to large medical premium increases at renewal" for the employer's traditional plans, Stuart said. "To make matters worse, the employer apologizes for offering the new plan, as though an HSA program by definition is a lessor option."
As a result, employees become frustrated with their "reduced" health benefits, which can lead to disengagement, lower productivity and higher turnover. An added burden is placed on HR staff, which is left to help employees understand the HSA program in a piecemeal fashion, often in response to employee complaints.
Deductibles on the Rise
The growth of health savings accounts is a result of the rising trend of offering a high-deductible health plan. As deductibles have gone up, HSAs have become a way to improve the situation for employees.
When employees receive health plan information during this fall’s open enrollment period, many will find that they will be responsible for a larger share of their out-of-pocket costs for 2017, as the trend toward higher deductibles continues. In 2016, for the first time, more than half of all workers—51 percent—had a deductible of more than $1,000 for a health plan covering a single person, compared with 46 percent last year, according to a recent annual poll of 1,933 employers conducted by two nonprofit health research organizations: the Kaiser Family Foundation and the Health Research & Educational Trust.
Workers on a single coverage plan had an average deductible of $1,478, up 49 percent since 2011.
Accentuate the Positive
Instead of being defensive, employers should use open enrollment to position the HSA program as an enhancement to the benefits package. "Education is critical, especially during the first year and the first two open enrollments in particular," Stuart noted, as employees are introduced to the advantages of HSAs and the workings of high-deductible plans.
"It's important to separate education about the account from the health plan and address the benefits of the HSA first," he added. "When employees hear the words 'high-deductible health plan,' many shut down. When they're educated about the benefits of an HSA first and then are introduced to the health plan as a means to take advantage of an HSA's benefits, they'll see this option with a more open mind."
Send the message that employees can win financially by enrolling in an HSA, Stuart said. "Account holders can accumulate sizable balances if they use their HSAs strategically—a point that employers and HSA administrators need to make" by emphasizing that an HSA is a lifetime account with an opportunity to build long-term balances. "Tax savings also make an HSA plan more attractive, but those savings are icing on the cake, not the cake itself," he said.
Employees often miss this point because they mistakenly apply the "use it or lose it" feature of health care flexible savings accounts (FSAs) to an HSA, both presenters stressed. FSAs may allow only $500 to be rolled over annually within the account, and only if the employer chooses to permit that option (some FSA plans, instead, offer a two-and-a-half-month grace period for using FSA dollars from the prior year). "Communication efforts need to stress that while FSAs have this 'lose it' provision, HSAs do not," Cook said.
Employees also can take their HSAs with them when they change jobs or retire. But, again, many employees don't understand that, unlike an FSA or an employer-funded health reimbursement arrangement, "an HSA is a personal asset that's completely portable," Stuart said.
Sweeten the Pot
Demonstrating the long-term value of an HSA is much easier when employers contribute to their employees' accounts. In 2018, HSA contribution limits from all sources (employee and/or employer combined) will be $3,450 for self-only coverage and $6,900 for family coverage.
"Employers need to pass on [their] premium savings from adopting a high-deductible plan and contribute to employees' HSAs so that employees believe they'll come out ahead if they enroll in the program," Stuart said.
In addition, "providing at least part of the employer's contribution upfront at the start of the year makes HSAs more attractive to employees who worry about incurring high expenses before they're able to fund their accounts adequately," he noted. "In most states, individuals can't reimburse tax-free any expenses they incur before their first HSA deposit, so an employer contribution upfront helps them with that" as well.
Also consider using a matching contribution formula, Stuart recommended: "IRS rules allow matching employer contributions in most cases, and the rationale is the same as matching contributions toward retirement savings: Employees are encouraged to begin to save on their own, and that encouragement promotes ongoing savings."
But "while employers need to help employees offset their out-of-pocket costs, they shouldn't cover all costs, up to 100 percent of the deductible," Stuart advised. "Employees need to have a financial stake" in their health care spending to keep them engaged as cost-conscious consumers.
In 2015, the average employer contribution to an HSA was $491 for a single employee and $882 for an HSA linked to family coverage, reported United Benefits Advisors, a network of independent benefits brokerage firms. Singles at some of the smallest companies, with 10 to 24 employees, received the most generous contributions—$541 on average—while families at these firms received $921.
Provide Support and Outreach
Make sure the HSA administrator provides live support during open enrollment via phone or online chat, Stuart advised.
And don't forget to reach out to spouses. One of Stuart's clients, an electrical contractor with 120 employees, rented a hotel ballroom on a Friday evening for a "date night" and benefits discussion. The client provided child care, pizza and beer. Employees and their spouses heard the presentation and could ask questions. "This small investment more than paid for itself with fewer calls by spouses to the company's HR folks," Stuart said.
Don't Overlook Financial Planning Education
Finally, Cook noted that only about 3 percent of HSA owners are investing a portion of their account balances in mutual funds, "probably due to lack of education about investment options." While not all employees can afford to set aside and invest some of their HSA savings for large medical expenses down the road and during retirement, providing financial planning aid can help more employees to do so.
Financial planning education can also help employees understand the complementary role played by HSAs and 401(k)-type savings plans as part of an overall financial strategy.
"Money saved in an HSA for retiree medical expenses works a lot harder than money saved in a [traditional] 401(k), even though both plans have the same tax advantages up to the point of withdrawal," Stuart said. "Tax-free distributions from HSAs put that account over the top" as a health care savings option.
"HR has been talking about financial education since day one," Cook added, "but the reality is most employees are not getting the message. If the majority of employees understood the long-term savings power of an HSA, more would be confident about how their retirement dollars are allocated. Employees can no longer look at retirement benefits and health benefits in separate silos—they should understand the financial impact of being both a health care saver and a retirement saver."
A recent analysis by Fidelity Investments shows that while more people are using HSAs, they're not spending as much as they thought they would: Three-quarters (76 percent) of HSA account holders withdrew less than they contributed to their HSA.
As a result, Fidelity is seeing more people carry over their HSA balance from year-to-year, and an increasing percentage of people investing their HSA dollars to grow their account, which can help to address future qualified medical expenses, including expenses in retirement.
As for those who aren't sure about using their HSAs for savings instead of spending, Christine Benz, director of personal finance at investment website Morningstar, advised in an online post about open enrollment and HSAs: "People who would like to use their HSA as a long-term investment vehicle but aren't sure if they can swing it long term can pay for their health care expenditures from their after-tax pockets as they are able. If they need funds at a later date for another, non-health care-related purpose, they can tap the HSA, provided they've saved the receipts for the health care expenditures they covered with non-HSA funds."
HSAs and Millennials: Thinking Long Term
A frequent mistake when discussing HSAs is putting "the focus squarely on spending rather than health savings, which contributes to the misconception that HSAs are nothing more than FSAs with a few added perks," said Pat Jarrett, president of HSA advisory firm Health Savings Administrators in Richmond, Va.
In the firm's August 2016 white paper, Making HSAs Relevant to Millennials, Jarrett noted that "HSAs are universally underutilized, largely due to misconceptions and a lack of information" but that "we have a real opportunity to educate Millennials, in particular, on the long-term benefits HSAs can provide."
He suggested providing a realistic example of how HSA funds can grow over time, despite unforeseen, necessary withdrawals. For example, a study by the Employee Benefit Research Institute on Lifetime Accumulations and Tax Savings from HSA Contributions, which he cited, showed that assuming a 5 percent rate of return, a 30-year HSA account holder who contributes annually at the allowable limit could save up to $313,000.
Jarrett encouraged employers to tell the HSA story differently, pointing out that "the S is for savings" and that "just a slight shift in perspective goes a long way in encouraging people to think long term."
Related SHRM Articles:
How to Explain High-Deductible Plans, SHRM Online Benefits, October 2016
Misunderstanding of HSAs Poses Open-Enroll Hurdle, SHRM Online Benefits, August 2013
Related SHRM Resource:
Guide to Open Enrollment Resource Page