The Latest HSA Trend: Automatic Enrollments

Health savings accounts (HSAs) are a growing workplace trend, with more employees socking away money into the savings accounts and more employers promoting them to workers as a way to funnel away tax-free money for health care expenses.

Now the latest momentum for these savings vehicles comes in the form of employers automatically enrolling eligible employees into the account.

Nearly half (46.7 percent) of organizations report they automatically enroll eligible employees in an HSA, according to the Plan Sponsor Council of America's (PSCA) 5th annual HSA survey of more than 500 employers. That's up by more than 30 percent in just two years.

Meanwhile, the number of employers using a default or suggested savings rate to encourage greater account funding has also increased (11 percent of respondents, up from 9 percent last year and 8 percent the year before).

The rise in automatic enrollments is a significant finding, said Ann Brisk, senior managing director of innovation and strategy at HSA Bank, and it symbolizes that HSAs are becoming an increasingly popular tool to save funds. It also implies that employers are getting more aggressive in pushing employees into the savings vehicle - especially as the survey found that about half of employers noted that getting employees to open an HSA after enrolling in a qualifying health plan is a challenge.

"The big jump in HSA auto-enrollments reflects the mainstream adoption of these accounts, and we can expect this trend to continue as more employers look to better support their employees' long-term financial future," Brisk said.

To put the rate of automatic enrollment in HSAs into context, she said, automatic enrollment in 401(k)s - which has been a common employer strategy for years - is used in roughly 64 percent of plans, according to PSCA data.

Employers leveraging "the long-standing success of automatic enrollment now so ubiquitous in 401(k) plans" in HSAs generally works in employees' best interest, said Jeff Scott, senior vice president of retirement at benefits consultant NFP.

"It works to nudge employees into something that for most, is in their best interest now and in retirement as ultra-tax-efficient HSA balances grow," he said. "Employers are attempting to drive better health outcomes for employees through cleverly crafted defaults - defaults that leverage the same inertia that prevents employees from saving appropriate amounts in 401(k) plans in the absence of automatic enrollment and escalation provisions."

Many industry experts have long touted the HSA as a smart savings vehicle due to its triple tax advantage: Contributions are made pretax, the money in the accounts grows tax free, and withdrawals for qualified medical expenses are tax free.

Proponents also say HSAs can promote better health care decisions and encourage workers to seek more regular care.

"Many consumers view health care as episodic and only seek out medical care when an issue arises," Brisk said. "Given the financial incentives with HSAs, the account encourages overall well-being and is a powerful tool in pushing consumers to think about preventive care."

Brisk clarified that employers can automatically enroll an employee in an HSA if they select a high-deductible health plan (HDHP) and said those employers "absolutely should."

"Most employers offer HSA contributions for employees who select an HDHP, and auto-enrollments ensure that employees have the ability to take advantage of those employer contributions," she said.

High Health Care Costs

The big jump in automatic HSA enrollment is likely primarily due to employers understanding the reality of high health care costs and their effect on employees, Scott said.

"I think the trend starts with employers facing the reality of how health care costs continually outpace other human capital costs in the workplace and the knowledge that behavioral finance nudges can led to better health, lower health costs and wealth creation for employees in the future," he said.

Health care costs inflated at a rate of approximately 4.5 percent each year from 1982-2022, according to the BLS's Consumer Price Index (CPI), which is significantly higher than overall inflation of 2.9 percent over the same time frame. Meanwhile, the 2023 HSA Bank Health & Wealth Index found that a third of workers were unsure if they could afford health care costs in the near term or in retirement.

"From a financial perspective, organizational margins can only compress so much before it impacts other areas of business, including capital spending and investing for growth. And with the average age of the skilled workforce growing, so too are projected employer-paid health care costs," Scott said. "Employers need productive and healthy employees. They also need timely turnover as employees age. HDHPs with HSAs are strategic vehicles to help create more employee health accountability today and financial well-being for tomorrow."

Brisk agreed. "As HSAs become more popular, employers and consumers alike are realizing the power of HSAs to take control of their health care costs and prepare for future medical expenses."

Other Momentum in HSAs

The big jump in automatic HSA enrollment also comes amid other momentum for the savings vehicle.

The PSCA survey also found that employees are putting more money into their accounts: Nearly 90 percent of eligible employees had an HSA in 2022, with about 8 percent more making contributions compared with the previous year.

Meanwhile, a significant three-quarters of employers make contributions to HSAs; most provide a set amount per coverage level.

"Concern for employees being able to fund their HSAs is growing among employers as the economy continues to struggle with higher costs of living, and many are putting supports in place to help," said Hattie Greenan, director of research and communications at PSCA. "Employers see the benefits of HSAs to help employees cover health care expenses now and in the future and are structuring their programs to help employees do so."

Brisk said employer contributions are an important way for employees to get excited about HSAs.

"[They] are the single best way to get more employees engaged with their HSA and can promote greater interest in their financial future," she said. "It's encouraging to see so many employers contributing to HSAs and, if budgets allow, they should consider matching employee contributions."

More employers (40 percent) also are framing the accounts as part of a holistic retirement savings approach and not just a spending account for current health care expenses. That number is up from 27 percent two years ago.

All of these employer actions can have a big impact on helping to boost employees' understanding, excitement and utilization of HSAs, Brisk said, adding, "Simple acts can continue to engage the workforce while also providing tangible solutions to future medical expenses."