As health care costs continue to rise and employers try to make sense of the complicated health care landscape, HR administrators and executives are searching for ways to control spending while also offering a benefits portfolio that helps them to attract and retain top talent. Increasingly, they are turning to high-deductible health plans (HDHPs) and accompanying health savings accounts (HSAs) to help employees cover their medical expenses and protect their wealth for the long term.
There are numerous advantages of HSA-qualified plans for employees, but perhaps what’s least understood by employees is the power of HSAs as a financial resource for retirement. Dollars that accumulate in an HSA do so with some of the best tax protection available from the IRS. Contributions to the account under a limit are tax deductible, they grow in the account with no tax applied to the earnings, and as long as a participant uses the funds towards a qualifying health care expense, they receive a full tax deduction on the withdrawal as well. As a result, a well-funded HSA can help a plan participant more feasibly retire before they are eligible for Medicare, since they can purchase lower-cost plans and use their HSA to cover out-of-pocket expenses.
In addition to opportunities for savings accumulation, employees facing a higher deductible with their HDHP may be encouraged to shop for lower-cost options on routine lab tests and procedures, thus becoming smarter consumers of health care.
As the prevalence of these plans has increased over the past decade, it appears HDHP participants are developing an affinity for them. Findings from the Kaiser Family Foundation indicate that demand from plan participants is one of the factors driving a 25 percent increase in high-deductible plans from 2006 to 2016. Therefore, employers who wish to steer more employees to HDHPs will be well served by offering educational resources explaining how these plans work to help employees fully assess their options and understand where an HDHP may fit in.
Advantages of HSA-qualified medical plans on the benefits marketplace
Benefits marketplaces offer employees a range of benefits choices at various price points, which enables them to choose the benefits that make the most sense for them based on their individual needs. They often use a defined contribution model—a set amount of money determined by the employer and given to employees with which they can shop for their own benefits in an online marketplace. In addition, Liazon-powered marketplaces and other benefits marketplaces like them allow employers to offer several plan types and a range of deductibles, giving employees meaningful choice and the ability to opt into a plan that works best for them and their budgets.
When employees can choose how to spend their employer-provided contributions rather than receiving employer-selected benefits, they spend more thoughtfully and show high overall satisfaction with their benefits portfolio.
Lastly, benefits marketplaces offer a selection of products that allow employees to take the savings they may be gaining from lower premium HDHPs and apply them to other products to help them offset their risks, such as accident, hospital indemnity or disability insurance. In many cases, due to the cost of the HDHP relative to more expensive plans, the participant will have the opportunity to do so in addition to contributing to their HSA and other tax-favored savings vehicles.
Why the adoption of HSA plans is higher on benefits marketplaces
HSA-qualified plans have experienced higher enrollment rates on benefits marketplaces as compared to more traditional, non-marketplace environments. In traditional enrollment environments, employees often don’t have the tools to fully understand the advantages of these types of plans, and when given the option between choosing lower-deductible (and often higher premium) plans or HDHPs, many tend to gravitate toward their familiar plan.
The Private Exchange Research Council (PERC), a think-tank comprised of benefits marketplace experts and top national insurance brokers and consultants, analyzed the adoption rates of HSA-qualified plans on Liazon-powered marketplaces and found that employees are signing up for HSA-qualified health plans at high rates: 68 percent of employees who were recommended an HSA-qualified plan chose to enroll in one, as opposed to 40 percent of employees who shopped on their own and didn’t receive a recommendation. In addition, those who enroll in this type of plan are choosing to stay enrolled: 81 percent of employees who enrolled in HSA-qualified plans in 2015 also enrolled in HSA-qualified plans in 2016 and 2017, suggesting that these plans are meeting their needs.
By comparison, the industry-wide adoption rates for HSA-qualified plans is 19 percent, according to a recent report from the Kaiser Family Foundation.
Although HSA-qualified plans may initially intimidate some employees, the PERC report indicates that with adequate education and communication, people find them to be a smart plan choice and are happy with the decision to purchase them. Benefits marketplaces equip employees with the necessary education to understand and choose health insurance plans appropriate for themselves and their families. And for many, an HDHP with an HSA is exactly that choice.
Alan Silver is director of carrier partnerships at Liazon.