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Correlation between employers’ HSA contributions and enrollment in high-deductible health plans
About two in three U.S. workers (67 percent) with a health savings account (HSA) or health reimbursement arrangement (HRA) reported that their employers contributed to the account in 2014, according to a new report by the nonprofit Employee Benefit Research Institute (EBRI). The report,
Employer and Worker Contributions to Health Reimbursement Arrangements and Health Savings Accounts, 2006–2014, was published in the March 2015
Consumer-directed health plans (CDHPs) combine high deductibles (at least $1,300 for individual coverage in 2015) and tax-preferred savings or spending accounts that workers and their families can use to pay out-of-pocket health care expenses—primarily HSAs and HRAs (here’s
how HSAs and HRAs differ).
The percentage of workers with an HRA or HSA-eligible health plan whose employers contributed to the account had steadily increased since 2009 and reached its highest level of 71 percent in 2013 since the inception of EBRI surveys monitoring trends in health accounts. It fell to 67 percent in 2014.
Additional insights into HSA contribution trends were published in
separate study findings released in March 2015 by United Benefit Advisors (UBA), an alliance of more than 140 independent benefit advisory firms.
According to new data released from UBA’s 2014 Health Plan Survey, last year employees saw a 10 percent decrease in their average single HSA employer contribution from the previous year, from $574 in 2013 to $515 in 2014. Average family contributions also decreased 7 percent during the same period, from $958 to $890.
“When HSA products were new, the employer could take the premium savings and fully fund the deductible,” said Brian M. Goff, president and CEO of Insurance Solutions, a UBA partner firm, in a news release announcing the new findings. “Now, however, premium reductions are not as great as they once were. As premiums increase, employers naturally opt to put their contributions toward premiums first and will slowly reduce their HSA funding to the point where, in some cases, it becomes entirely the employee’s responsibility,” Goff said.
“At the end of the day, employers typically have a budget that they work within,” added UBA partner Andrea Kinkade, president of Kaminsky & Associates Inc. “Either employee payroll deductions (premiums) increase or employer HSA contributions decrease to keep benefit costs within the budget,” she noted.
Smaller employers (1 to 50 employees) have been exceeding the average HSA contribution for singles, while larger employers (51 to 1,000 or more employees) have been less generous, according to the UBA survey. In fact, the largest employers (1,000 employees or more) showed the lowest average contribution at $426. Similarly, for families, HSA contributions by smaller employers tended to be above the average $890 contribution, while large employers (1,000 employees or more) funded an average of $760.
“Many large groups are self-funded where premium equivalents between HSA plans, health maintenance organizations (HMOs) or preferred provider organizations (PPOs) are not as great,” said Goff. “As a result, the expectation is that the employer contribution to the HSA will not be as great.”
“Generous HSA contributions among small groups are typically designed to help compensate for higher deductibles than those that are offered in larger group plans,” said Kinkade.
UBA found that large employers also had lower CDHP enrollment. Even though 25.5 percent of large employer plans had CDHPs, only 16.6 percent of their employees were enrolled in them in 2014.
At these large employers, “even modest increases in HSA contributions can be a key part of the puzzle in migrating employees to lower-cost CDHP plans,” said Les McPhearson, CEO of UBA.
The correlation between generous HSA contributions and increased enrollment in high-deductible health plans was significant across different industries and regions, with the exception of California, which had the most generous HSA contributions ($808 for singles and $1,316 for families) yet the lowest enrollment in CDHPs: only 11.3 percent of plans in California were CDHP plans and only 8.1 percent of employees were enrolled in them.
“Market dominance of Kaiser and a strong HMO preference in California offsets the rate relief offered by CDHPs, making the high deductible not worthwhile,” Goff suggested.
“In the Midwest, we still see some employers continuing to offer higher HSA contributions or lower premium contributions as a way to entice employees to these cost-saving plans,” noted Kinkade.
----------------------------------------------------------Some employers offer higher HSA contributions to entice employees into these cost-saving plans.----------------------------------------------------------
New England, which typically has the most generous health care packages overall, saw average HSA contributions of $685 for singles and $1,342 for families. South Central states had the lowest contributions: $360 for singles and $554 for families.
Nearly 36 percent of North Central states offered CDHP plans (the highest of any region) and more than 40 percent of employees in this region were enrolled in such plans (also the highest in the nation).
Source: United Benefit Advisors
In looking at the survey data by industry, construction, health care/social assistance, mining/oil and gas extraction, retail and wholesale provided the lowest HSA contributions for singles and families. Conversely, government employees had the most generous HSA contributions ($791 for singles and $1,431 for families).
“Construction companies typically hire young men who demographically don’t place a lot of value in benefits. Government, on the other hand, has traditionally substituted salary for benefits; one way to move those employees off an expensive plan is to fully fund their deductible,” says Goff. “But carrier motivations can also be at play. Some carriers give a certain premium discount to go to the high deductible plan. So if you have a low premium, i.e., construction because of a young male demographic, the premium may only come down $800 a year to add a $1,500 deductible. On the other hand, take a nursing home that has expensive premiums, the savings may be $1,700 to add a $1,500 deductible, making it a no-brainer to switch to an HSA plan.”
The strategy of attracting employees to CDHP plans with generous HSA contributions has worked in the finance and insurance industry as well, where 32.3 percent of plans were CDHPs (the highest of any industry) and enrollment was 32.1 percent (also the highest enrollment of any industry). HSA contributions in the finance and insurance industry were at $634 for singles and $1,074 for families, 20.7 percent and 18.7 percent above average, respectively.
While CDHP offerings were up 8 percent from 2012, they were largely unchanged from 2013, UBA found. From an enrollment standpoint, however, CDHPs have seen increases of more than 30 percent in the last two years (15.6 percent to 20.6 percent), despite overall decreases in employer contributions to HSAs.
Despite the decrease in employer contribution levels noted by UBA, more employers are offering HSAs to help workers save for health care today and in the future. Fidelity Investments, a large provider of employee HSAs, reported
34 percent increase in HSA employer clients in 2014. This marked the firm’s fourth straight year of double-digit client growth in this area.
“Clients are asking us to help their employees save for rising health care costs today and in retirement, and an HSA can go a long way toward meeting that goal,” said Eric Dowley, senior vice president at Fidelity.
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