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In one way or another, we are all bracing for a recession after two consecutive quarters of decline in economic activity. While the impact of a recession can be far-reaching, for those with and supporting health savings accounts (HSAs), there might be a glimmer of hope. Let's see how HSAs provide a recession-resistant benefits approach for individuals, employers and brokers/consultants.
Participating employees & individuals–What to know?
A focus on essential care. During a recession, individuals are more likely to put off non-essential medical care. Rather than planning to build their HSA balance for the future, they may use it to ensure they are saving for the known expenses that are unavoidable. By paying for their medical expenses with HSA dollars on a tax-free basis, individuals save an estimated $30 for every $100 in expenses.
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Shift to 'pay-as-you-go' funding. An HSA allows individuals to change what they are contributing at any time, for any reason. When money is tight, individuals may reduce their ongoing contributions or wait until they incur an expense to fund the account. HSA limits are set annually and can be funded until the tax filing deadline for the prior year. As long as the HSA was established at the time of the expense, employees can reimburse themselves retroactively, if needed.
Existing HSA balances insulate the impact of economic hardships. Having an HSA can help insulate individuals against some of the financial impacts of an economic downturn. Their existing HSA balance can serve as a reserve they can dip into. Additionally, if an individual finds themselves unemployed, HSA funds can be used to pay COBRA premiums.
Leveraging discounts and lower cost alternatives. HSAs have long since been promoted as a way to encourage consumerism, but it can be challenging and requires a conscious effort. However, a recession can give individuals the extra nudge to leverage discounts, look for lower cost alternatives and become a more engaged consumer of their health care.
Good time to consider investing. Although HSAs were created to help save for health care expenses, most HSA owners aren't using them to their full potential. According to a recent study, only 9% of HSA owners invest a portion of their funds, and the rest, 91%, hold cash. For those who are able to invest their HSA funds, a recession can present a good time to start investing at a lower point—leading to higher potential returns in the years that follow.
Employers–What to know?
Reduce and/or scrutinize expenses. Employers are under pressure and may not know what the future holds. It is common to scrutinize expenses to ensure each item is essential and provides value to the organization. Employers may need to cut back on their benefits spending. If presented with the choice between increasing premiums an employee pays or funding the HSA, employers should consider funding the HSA. The HSA contribution has a higher perceived and quantifiable value to employees. Premiums are less visible and get lost in the sea of payroll deductions and taxes.
Need to shift costs to employees. Health care premiums increase an average of 5% to 10% per year. However, in times of recession, company revenue and expense budgets are likely to shrink. This leaves employers faced with a deficit. Oftentimes, the only real option is to pass on increases to employees. In order to reduce the impact of an increase, employers should evaluate moving to a high deductible health plan with an HSA. According to Kaiser Family Foundation's 2021 Annual benefits survey, an HDHP with an HSA saves an average of $1,264 in premiums for family coverage over a non-HDHP with an HSA option. Employers that were hesitant in the past to switch to a high deductible health plan may see how an HDHP with an HSA provides a balance between a robust benefit and cost management.
Manage risk. HSAs are cash accounts. Individuals can only spend what has been deposited into the account. Employers who have traditionally front-funded an employer contribution may want to consider prorating their contributions throughout the year. This reduces the risk of funding the HSA, only to have the employee leave shortly thereafter.
Brokers & consultants –What to know?
Increased pressure to demonstrate value. As employers are scrutinizing expenses, they will expect their brokers/consultants to be doing the same. Brokers/consultants should be proactive and be prepared to demonstrate how they have their clients' best interests in mind.
Clients will be shopping to cut down on expenses. Be prepared for tenured clients to go out to bid. Clients that were hesitant in the past to consider HDHPs with HSAs are likely to have a new lens. If you don't present it, you are guaranteed that someone else will be.
Voluntary benefits can provide an opportunity for expansion or diversification. Voluntary benefits such as specific disease or illness, fixed amount per day for hospitalization, accident coverage and disability coverage can augment health benefits. These benefits are permitted with an HSA. These benefits cost at a relatively low cost to the employee and create peace of mind. It doesn't increase the employers' cost. And, it creates a potential revenue stream for the broker/consultant.
While no one looks forward to a recession, an HSA might just provide a glimmer of hope for all involved.
Becky Seefeldt is vice president of strategy at Benefit Resource.
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