Consumer-driven health care (CDH) accounts, such as health savings accounts (HSAs), health reimbursement arrangements (HRAs) and flexible spending accounts (FSAs), offer huge benefit to consumers, employers, and the U.S. health care system. But, despite being widely offered by employers, these accounts are too often under-utilized and under-funded.
According to Aite Group research, only 23 percent ($86.3 billion) of the $371 billion spent on out-of-pocket health care costs in 2018 are estimated to flow through tax-advantaged accounts. This means that a staggering $285 billion will be spent on out-of-pocket expenses using post-tax dollars, leaving billions in tax savings on the table. Broken down, a simple change in the way consumers pay for their eligible out-of-pocket medical expenses would save employers $22 billion in FICA taxes and consumers another $85 billion in state and federal taxes (assuming an average federal/state tax rate of 30 percent).
With open enrollment just around the corner, there are plenty of things that brokers and their clients can do to influence account adoption to help employers take home their share of a $22 billion tax savings opportunity. With CDH account penetration rates ranging from single digits to more than 75 percent, clearly, some employers have found ways to push uptake well beyond the national average.
Let’s learn some tricks of the trade.
With employers increasingly using consumer-driven healthcare and financial wellness strategies to protect their employees against increasing out-of-pocket expenses and long-term health care costs, how can they best ensure employees adopt these account-based programs this open enrollment season?
It’s not as simple as offering CDH accounts, the plan design and communication strategy employers use must be right.
1) Pair a tax-advantaged account with every health plan offered
Nearly every health plan requires some consumer out-of-pocket spending. And, whether the plan is a traditional PPO or a high deductible plan, there is value in pairing the plan with a tax-advantaged healthcare account that enables both the consumer and the employer to save money. Between FSAs, HSAs and HRAs, every health plan offered should be paired with a complementary tax-advantaged account or accounts. If they aren’t, both employers and their employees will leave money on the table in the form of missed tax savings.
2) Position the consumer-driven health plan to win
According to the National Business Group on Health, this open enrollment season, 39 percent of large employers will only offer consumer-driven health plans (CDHPs). This means that for the majority of employer groups, CDHPs are still offered in parallel with traditional plans, and, therefore, are still a choice. So, the question becomes: Are your clients’ CDHP programs positioned to win?
Because it’s human nature to resist change, when CDHPs are a choice, employers can expect employees who are currently enrolled in a traditional health plan to resist the transition to a consumer-driven plan unless the new plan is designed to deliver real value, is supported with the right training and communication plan, and is introduced in a way that purposefully disrupts the status quo.
Employers who offer both a consumer-driven health plan and a traditional plan should construct the CDHP so that it is benefit neutral to the traditional plan and gives employees equivalent value for out-of-pocket costs. They should consider making premium adjustments to legacy plans so that there is a clear savings for the CDHP offering, always require active enrollment so employees cannot passively default into prior year benefit elections, and support the program with a comprehensive training and communication approach that includes visible endorsement by key executives and leaders.
3) Provide incentives
As you might expect, employer contributions to CDH accounts make a substantial impact on adoption. In fact, an annual employer contribution of $800 to an HSA nearly doubles the adoption rate. According to the same National Business Group on Health research, 86 percent of large employers currently contribute to HSAs, with $650 median contributions for single participants and $1,070 for families.
Some progressive companies are beginning to structure their account contributions more like a 401(k) match. Mercer reports that 6 percent of large employers offer matching contributions and 19 percent leverage incentive-based contributions, such as wellness rewards for completing specific tasks that are delivered with a cash value directly into the benefit account.
Regardless of how an employer structures their account contributions, they are essential for CDH adoption and will increase employee satisfaction. Employees will be able to see that their employer offers CDH not to shift costs, but to deliver more value for the dollars already spent on health care today.
4) Provide robust education and decision support
You know the drill. Employees perpetually struggle to understand their benefit options, particularly when it comes to calculating the likely out-of-pocket costs associated with different health insurance plans. Another recent Alegeus research report found that more than half (51 percent) of consumers can’t forecast their likely out-of-pocket costs for the current plan year.
Arm employees with the information and tools they need to calculate the financial implications of their plan options. In addition, be sure to educate key staff to properly position and communicate the benefits of consumer-driven health plans and accounts during open enrollment. Benefit account providers should make these resources available to their broker and employer clients.
5) Communicate year-round, not just during open enrollment
According to Alegeus research, communication is a huge barrier to adoption, with 60 percent of employers relying exclusively on plan summary documents and enrollment forms to influence employee decision making. At the same time, only 33 percent offer plan comparison tools and multimedia educational content and just 17 percent offer interactive decision support tools based on personal data entered.
While open enrollment is a hugely important time to educate and communicate with employees, it isn’t the only time to do so. Unfortunately, 65 percent of employers only communicate about health benefit offerings during open enrollment, and as a result, employees are left in the dark most of the plan year. Communicating with employees throughout the year keeps timely topics top-of-mind.
Shift, support, and enroll
If your clients’ plan designs are optimized with appropriate incentives to participate in the account and are supported by an effective year-round communication and training approach, these account-based CDH programs can be an extremely effective benefit strategy that leaves employees satisfied, engaged, and receiving better value for their health care dollars.