HSAs Outpace HRAs in Adoption and Participation

Funding levels are up, but are employers over-contributing to their HRAs?

By Stephen Miller, CEBS Jul 15, 2014

The number of U.S. employers offering health savings accounts (HSAs) increased from 14.7 percent to 15.1 percent in 2013, and employee participation in these plans rose from 7.1 percent to 8.8 percent in the same period, according to new data from the 2013 UBA Health Plan Survey, based on responses from 10,551 U.S. employers sponsoring 16,928 health plans of all sizes nationwide.

By contrast, the percentage of employers offering plans with health reimbursement arrangements (HRAs) in 2013 was 8.6 percent, and employee participation in these plans dropped from 8.8 percent in 2012 to 8.6 percent in 2013.

United Benefit Advisors (UBA), a benefits advisory network that sponsors the annual survey, expects these trends to continue as HSAs prove themselves to be more successful at driving consumer behavior and cost containment than HRAs, while staying compliant with the maximum allowable out-of-pocket costs under the Affordable Care Act (ACA).

For small-group plans, “the ACA originally capped deductibles at $2,000 for individuals and $4,000 for families, forcing employers to buy plans with lower deductibles,” explained Elizabeth Kay, compliance and retention analyst for AEIS, a UBA partner firm. “As a result, we saw premiums go up dramatically in 2014, for some as much as 250 percent to 400 percent.”

But in 2014, ACA deductible limits for small-group plans were removed in favor of the same total out-of-pocket limits (on deductibles, co-pays and co-insurance combined) that apply to large-group plans. “I think carriers will be more creative with their plan designs next year, and we may see a comeback of higher deductible and HSA-qualified plans” among the small and midsized companies that comprise approximately 98 percent of the nation’s 5 million-plus employers, said Kay.

Funding Levels

Funding from all sources (employees, employers or both) for plans with HSAs remained fairly constant from 2012 to 2013:

For individual coverage with HSAs, average annual funding was approximately $574 for both years.

For family coverage with HSAs, average annual funding rose from $928 to $958.

By contrast, funding levels of plans with HRAs, which can only be funded by employers, increased significantly from 2012 to 2013:

For individual coverage with HRAs, average annual funding rose from $1,605 to $1,766.

For family coverage with HRAs, average annual funding rose from $3,075 to $3,506.

Cost-Conscious Spending

Higher funding by employers for HRAs may be working against the goal of controlling consumer spending, Kay said. Consumer-directed health plans (CDHPs), which include high-deductible plans linked to an HSA and HRA, “were designed to control costs by controlling consumption,” she explained. “However, many employers began to ‘wrap’ CDHPs with a partially or fully funded HRA to make the overall plan more affordable for their employees. Unfortunately, this strategy backfired because employees were still not spending their own money and not changing their consumption, so claims exceeded projected costs on these plans and premiums increased.”

In contrast, HSAs, typically funded in whole or in part by employees, can provide a clearer incentive for participants to make cost-conscious spending decisions. But whether an employer opts to provide HSAs, HRAs or both, “employee communication and education are critical,” Kay noted.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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