The current benefits & HSA environment

Unfortunately, due to a lack of understanding and engagement, a majority of employees overpay for health insurance compared to what they need, costing on average about $1,700 per year per employee. Not only can overpaying exceed 2% of an employee's pre-tax salary, but overpaying on health benefits can have adverse and long-term impacts on retirement savings and investments.

Add this state of play on top of the global pandemic where we're seeing high unemployment rates, it's more important than ever that employers help employees understand when HSA-eligible plans may be the most appropriate fit for their needs.

How HSAs help mitigate financial burden

HSAs offer holistic benefits that can help employees best manage their short- and long-term health care needs and finances.

One of the most impactful benefits of an HSA is its triple tax benefit:

• Contributions to an HSA are not subject to federal income taxes;
• Earnings to an HSA from interest and investments are tax-free; and
• Distributions from an HSA to pay for qualified medical expenses are tax-free.

In 2020, HSAs received expanded benefits under the CARES Act, signed into law on March 27. The CARES Act ensures that individuals with HSAs or Flexible Spending Accounts (FSAs) can make tax-qualified purchases on hundreds of over-the-counter (OTC) products like cold and flu medications without a prescription. Furthermore, individuals can also access telemedicine which has been critical during the pandemic without jeopardizing the status of their high deductible health care plan (HDHP). While the OTC change is permanent, the telehealth exemption is valid until December 31, 2021.

When looking long-term, unused HSA funds roll over year after year, so there's no "use it or lose it" penalty. HSAs also provide the potential to build more savings with compelling investment options. Most importantly for retirees after the age of 65, funds can be withdrawn for any purpose without penalty, though they may be subject to income tax if not used for IRS-qualified medical expenses.

Unfortunately, there are many misconceptions when it comes to HSAs and it's important to note that a lack of education around HSAs can lead to a fear of cost, causing people to make a decision out of fear rather than what's right for them. The most common misconception we see are employees mistakenly believing HSA tax benefits don't apply to them or that they wouldn't benefit from an HSA because of the potential out-of-pocket (OOP) costs of an HDHP.

What can employers do?

We see an opportunity here. By helping individuals take advantage of HSAs, as an industry we can address a widening health and wealth gap. In order to help more employees benefit from HSAs, employers should focus on helping those who qualify to use HSAs and maximize their benefits, help employees overcome cost aversion to a high deductible, and opt into an HSA-eligible plan when it's the right fit.

1. Plan Design.

Plan design is a critical piece of the puzzle as it pertains to supporting employees and identifying the most appropriate benefits. What should employers consider in plan design?

• An HDHP/HSA-eligible plan should be more attractively priced than a traditional plan in order to reward the employee's behavior.
  • Employers should try to reward the employee with an HSA contribution at least equal to the premium differential.
  • Consider the total OOP exposures between plans and attempt to deliver parity between plans with net OOP expenses.
• Employers should consider contribution strategies to maximize enrollment and encourage employee contribution participation.
  • Employers should provide their contribution on the first day of the plan year to alleviate concerns about covering the deductible.
  • Employers should utilize a Section 125 Cafeteria Plan to allow for employees to make pre-tax salary reduction contributions.
  • Employers should utilize some form of matching contribution structure to employees making salary reductions. This is the most powerful tool employers can utilize to encourage regular contribution and savings behavior that helps employees afford current expenses and save for their future needs.

2. Employee education & support

There are proactive steps employers can take to ensure their employees are receiving an appropriate and critical level of education as they are making decisions around their benefits. First, employers should analyze their demographics and offer targeted education based on their employee base. For example, an employee demographic that's largely Generation Z will require different education and support than an employee demographic of Baby Boomers. Second, employers need to ensure they are offering HSA-specific messaging around HSAs during open enrollment. Lastly, employers should implement year-round education to engage employees and build confidence.

3. Employee decision support

Helping employees make the most appropriate decision is vital to the engagement process. Employers should work to show employees, at-a-glance, which health plan can save them the most money and help employees see how much money they've lost in previous years. Additionally, employers should provide HSA-specific education and resources, and personalized support for all questions around benefits. We've seen that these efforts increase employee confidence that an HDHP is right for them and enable employees to make the most appropriate decision.

Offering claims-based report cards is also an effective way to tackle employee decision support. In practice, employees would receive report cards showing whether or not they made a good choice the previous year ahead of open enrollment. This gives employees critical information in a concise, easy-to-digest format, nudging them into action and providing motivation for them to learn how to save.

Working toward improved benefit plan dynamics

The COVID-19 pandemic has caused financial pressure which necessitates that employees need to be even more engaged in making smart decisions with their health care dollars. When employers offer increased support and education, employees are more engaged, resulting in better and more confident health care choices. In the execution of the above strategies and tips, employers should expect to see the creation of an improved benefit plan environment in which more employees are choosing their health plan based on knowledge rather than cost aversion. As a result, the total health care bill for companies may decrease as a result of simply doing the right thing for their employees.

Kevin Robertson is Chief Revenue Office at HSA Bank.

Read more: 

• HSA education: Employer actions matter
• Employer matching is common in 401(k)s – and may even be better in HSAs
• How to achieve equitable employee benefits in 2020 and beyond