3 things you should be telling employees about HSAs
HSAs can seem to be complicated but can save your employees an additional 20 percent on average compared to paying out of their pockets. Here are 3 tips for an employer to keep in mind about HSAs.
Everyone wants to spend less on health care, but many employees don’t realize that an HDHP plan with an HSA might be the best deal they can get. Some people get scared off by an HDHP’s big deductible, some are accustomed to FSAs, and some just think an HSA seems too complicated.
But using an HSA to pay for health expenses can save your employees an additional 20 percent on average compared to paying out of their pocket. HSAs give them a way to pay for current and future medical expenses, and every dollar they save in their HSA saves you money on payroll taxes.
Here are three things you should be communicating about your HSAs:
1. FSAs are rubber, HSAs are glue
Many employees familiar with FSAs will expect that all health care accounts follow the “use it or lose it” rule. To them, saving a lot of money on health care will seem like a gamble since with an FSA, it can be better to save too little rather than way too much.
Make sure your employees understand that there’s no “use by” date on their HSA. The money they save will stick with them until they need it — this year, next year, or twenty years from now. Emphasize that the HSA is their account, and they’ll carry it with them even if they change jobs or retire. And speaking of retirement…
2. HSAs are a great way to save for retirement
Employees who understand their HSA may still only think of them as a way to cover their current medical expenses. The sobering reality is that the average couple will have over $240,000 in medical expenses during retirement. An HSA offers a great way to save for those expenses and other retirement costs.
Explain to your employees that HSA savings can be invested like a 401(k) and can grow year-after-year. An HSA actually offers better tax savings than an 401(k) when it’s used to cover medical expenses. Reassure your employees that there’s no downside to saving too much, because once they turn 65, their HSA savings can be spent on non-medical expenses, so they can use that HSA money to buy themselves those senior-discount skydiving lessons. And speaking of treating themselves…
3. You can pay yourself back with an HSA (thanks, self!)
Many employees worry that they’ll get no benefit from an HSA if they run into medical expenses before they’ve saved enough, so they choose an FSA, since their FSA annual contribution would be available immediately.
Let them know that they can use their HSA to “reimburse themselves” for any out-of-pocket money they spend on medical expenses. So if they spend $100 out-of-pocket on an X-ray in January, they can save some pre-tax money in their HSA during February, and write themselves a check for $100. Just remind them the medical expense has to be from afterthey opened the HSA—so setting it up right away is critical.
HSAs can save everybody money; employees just need to know how to make it work. Having a solid understanding of the benefits and flexibility of HSAs can help employees realize how easy it is to lower their taxes, cover their medical expenses, and save for the future.
SOURCE:
Schneider, C (2 July 2018) "3 things your clients should be telling employees about HSAs" [Web Blog Post]. Retrieved from https://www.benefitspro.com/2018/07/02/3-things-your-clients-should-be-telling-employees/
Employer HSA contributions falling
Originally posted by Kathryn Mayer on March 25, 2015 on benefitspro.com.
This last year may have seen another big increase in the number of health savings accounts. But it also saw a drop in the amount employers are contributing to those accounts.
Employees saw a 10 percent decrease in their average single HSA employer contribution from the previous year, according to new data from United Benefit Advisors. In 2013, employers contributed an average of $574 per employee but last year that dropped to $515, the report says.
Average family contributions also fell 7 percent during the same period, from $958 to $890.
UBA said the survey results reveal a correlation between enrollment in HSAs and consumer driven health plans, linking higher HSA contributions to increased enrollment in the cost-saving plans.
“Employer HSA funding strategies have changed in recent years in response to the Patient Protection and Affordable Care Act and its impact on employer-sponsored health insurance plans,” says Brian Goff, president and CEO of Insurance Solutions, a UBA partner firm.
“When HSA products were new, the employer could take the premium savings and fully fund the deductible. Now, however, premium reductions are not as great as they once were,” Goff said. “As premiums increase, employers naturally opt to put their contributions toward premiums first and will slowly reduce their HSA funding to the point where, in some cases, it becomes entirely the employee’s responsibility.”
The deductible amount, the employee premium contribution, the out-of-pocket maximum, and whether there are other types of plans offered will also impact an employer’s HSA contribution strategy, says Mark Sherman, Principal of LHD Benefit Advisors, another UBA partner firm.
Devenir said last month that the number of health savings accounts jumped 29 percent as of the end of 2014, reaching 13.8 million.
UBA found that smaller firms are the most generous when it comes to HSA contributions.
Smaller employers (those with 1 to 50 employees) are exceeding the average HSA contribution for singles, while larger employers (50 to 1,000-plus employees) have been less generous, UBA said. Even larger employers, those with 1,000-plus employees, show the lowest average contribution at $426. Similarly, for families, HSA contributions by smaller employers tend to be above the average $890 contribution, while large employers fund an average of $760.
The trend, Goff said, likely stems from smaller companies to make more personal decisions about their employees and benefits.
The UBA survey also found:
- California has the most generous HSA contributions ($808 for singles and $1,316 for families) yet the lowest enrollment in CDHPs: only 11.3 percent of plans in California are CDHP plans and only 8.1 percent of employees are enrolled in them.
- New England, which typically has the most generous health care packages overall, sees average HSA contributions of $685 for singles and $1,342 for families.
- By industry, construction, health care/social assistance, mining/oil and gas extraction, retail and wholesale provide the lowest HSA contributions for singles and families. Government employees have the most generous HSA contributions ($791 for singles and $1,431 for families).
For its research, UBA surveyed 9,950 employers sponsoring nearly 17,000 health plans nationwide.
Men’s HSA account balances far outpace women’s
Originally posted June 19, 2014 by Dan Cook on www.benefitspro.com. 
Women, on average, don't have as much money in their health savings accounts than do men. This nugget is among the findings of an Employee Benefit Research Institute study, which was conducted on the 10th anniversary of the creation of HSAs.
At the end of 2013, men had an average of $2,326 in their account, while women had $1,526, EBRI said.
While the male-vs.-female gap went unexplained by the researchers, that output was perhaps the most surprising to come from the study. Other findings were more or less in line with expectations about those who choose HSAs to pay for their health care.
EBRI reported that older individuals have considerably more money in their accounts that do younger HSA users: Those under 25 had an average of $697, while those ages 55-64 $3,780 those 65 or older had an average account balance of $4,460.
Younger ones used a small percent of their account balances for health-related expenditures, and they also tended to take fewer distributions from their accounts that did older individuals. Yet at a certain age, the likelihood of a distribution fell significantly.
“The likelihood of taking a distribution increased from 44 percent among individuals under age 25, to 66 percent among those ages 35–44 and 45–54,” EBRI said in a release. “That likelihood dipped slightly (to 64 percent) among those ages 55–64 and still further (to 49 percent) among those ages 65 and older.”
“The decline in the average amount distributed, as well as the likelihood of there being a distribution for health care claims at older ages, may have been a reflection of fewer people covered by the HSA-eligible health plan as fewer dependent children are covered by older account owners,” said Paul Fronstin, director of EBRI’s health research and education program, and author of the report.
Other findings:
- The average HSA balance at the end of 2013 was $1,766, up from $1,280 at the beginning of the year;
- On average, individuals who made contributions deposited $2,032 to their account. HSAs receiving employer contributions received $1,184, on average;
- Four-fifths of HSAs with a contribution also had a distribution for a health care claim during 2013;
- Looking at HSAs with claims, the average amount distributed for health care claims in 2013 was $1,953.
Input for the study came from data collected from HSA providers with total assets of $2.7 billion as of Dec. 31, 2013. This represents 14 percent of the universe of HSAs and 14 percent of HSA assets, EBRI said.
HSA enrollment jumped in 2013: Fidelity
Originally posted May 7, 2014 by Jerry Geisel on www.businessinsurance.com
Enrollment in health savings accounts continues to surge as more employers are moving to consumer-driven health care plans, Fidelity Investments said Wednesday.
Fidelity said in a statement that the number of HSAs it administered in 2013 jumped to 269,000; up nearly 48% compared with 182,000 in 2012 and a 126% increase over 2011, when Fidelity administered 119,000 HSAs.
“Fidelity continues to drive adoption of its health savings account business as companies and their employees realize their potential advantages both today and over the long haul,” Will Applegate, a Fidelity vice president in Boston, said in the statement.
Numerous surveys have found that the cost of high-deductible consumer-driven health care plans linked to HSAs are less costly compared with other health care plans.
For example, a survey last year by Mercer L.L.C. found that the cost of coverage in CDHPs with HSAs is about 20% lower, on average, than the cost of preferred provider organization coverage — $8,482 per employee compared with $10,196 per employee for preferred provider organization coverage.
That cost difference will become even more important starting in 2018, when a health care reform law provision that imposes a 40% excise tax on health care plan costs exceeding $10,200 for single coverage and $27,500 for family coverage kicks in.
Making HSAs and wellness work together
Originally posted January 13, 2014 by Rose Rosa on https://ebn.benefitnews.com
Maximizing the positive impact of a wellness program is a goal of many employers. Much of the discussion around wellness focuses on how to increase employee participation. Doing so remains a challenge for many employers, but there are some innovative approaches employers are exploring.
One concept we’re seeing is tying wellness to health savings accounts. With a HSA, employees can use tax-free dollars to pay for qualified out-of-pocket healthcare expenses, typically including items such as eyeglasses or prescription medications. Now, some employers are expanding use of HSAs to drive wellness participation.
Combining wellness and HSAs is a long-term strategy. However, there can be some immediate benefit for the employer, which typically begins by going from a traditional fully insured plan to a high-deductible plan with a HSA, thereby saving the employer some money right out of the gate.
Here’s how tying a HSA to wellness can work: The employer funds or partially funds a HSA, which is the “carrot” to get employees interested in the account. Over time, some employers introduce the so-called “stick” to maximize participation by requiring employees to meet certain health-related criteria.
Here’s one possible approach:
• In the first year, the employer contributes to the employees’ HSA account (typically, a 50% contribution).
• To receive the 50% contribution in year two, employees are required to complete a health risk assessment.
• In year three, the employer will increase the requirements, perhaps including completion of another HRA, plus biometric testing.
By increasing the conditions that must be met, it creates a natural progression that helps employees become more aware of their health and to do something about any issues identified by the screening. It also demonstrates to employees what they need to do to control their personal health care costs; those who make progress get discounts on their plan, so they become more responsible for their own health and ultimately their own savings. As employees control their costs, they help control the employer’s costs as well.
In the end, it’s a win-win scenario; the combination of HSAs and wellness programs can provide value to both employees and employers. It’s also an effective way to guide beneficial behavior since employees who follow the program are more likely to take steps to become (or stay) healthy. Using this type of program can also be a good opportunity to tie in other health initiatives, such as smoking cessation. One approach is to apply a smokers’ surcharge on the employee contributions (the stick) while also offering smoking cessation programs to help the employee quit smoking (the carrot to avoid the stick).
To make this combined strategy work, education is a vital. HSAs are most effective if employees understand how the program works, so it’s the employer’s duty to teach them. With this approach, employees have greater risk and higher deductibles, but they also have greater control and choice, coupled with an incentive to be healthy. Essentially, this spurs the employee to become a more educated consumer of health care services.
But it’s up to the employer to make the first move.
IRS Issues Higher Limits for HSA Contributions for 2014
Original article https://www.shrm.org
By Stephen Miller
The Internal Revenue Service announced higher limits for 2014 on contributions to health savings accounts (HSAs) and for out-of-pocket spending under high-deductible health plans (HDHPs) linked to them.
In Revenue Procedure 2013-25, issued May 2, 2013, the IRS provided the inflation-adjusted HSA contribution and HDHP minimum deductible and out-of-pocket limits, effective for calendar year 2014. The higher rates reflect a cost-of-living adjustment and rounding rules under Internal Revenue Code Section 223.
A comparison of the 2014 and 2013 limits is shown below:
|
|
Calendar Year 2013 |
Calendar Year 2014 |
||
|
Self-only |
Family |
Self-only |
Family |
|
|
Annual Contribution Limit |
$3,250 |
$6,450 |
$3,300 |
$6,550 |
|
HDHP Minimum Deductible |
$1,250 |
$2,500 |
$1,250 (no change) |
$2,500 (no change) |
|
HDHP Out-of-Pocket Limit |
$6,250 |
$12,500 |
$6,350 |
$12,700 |
The increases in contribution limits and out-of-pocket maximums from 2013 to 2014 were somewhat lower than the increases a year earlier, reflecting the government's calculation of a more modest inflation rate. From 2012 to 2013 the contribution limit rose $150 for individual coverage and $200 for family plans, while maximum out-of-pocket amounts rose $200 for individuals and $400 for families, and HDHP minimum deductible amounts rose $50 for individuals and $100 for families.
Penalties for Nonqualified Expenses
Those under age 65 (unless totally and permanently disabled) who use HSA funds for nonqualified medical expenses face a penalty of 20 percent of the funds used for such expenses. Funds spent for nonqualified purposes are also subject to income tax.
Coverage of Adult Children
While the Patient Protection and Affordable Care Act allows parents to add their adult children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that an employee whose 24-year-old child is covered on his HSA-qualified high-deductible health plan is not eligible to use HSA funds to pay that child’s medical bills.
If account holders can't claim a child as a dependent on their tax returns, then they can't spend HSA dollars on services provided to that child. According to the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendant of these) who:
- Has the same principal place of abode as the covered employee for more than one-half of the taxable year.
- Has not provided more than one-half of his or her own support during the taxable year.
- Is not yet 19 (or, if a student, not yet 24) at the end of the tax year or is permanently and totally disabled.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Best HSAs combine attractive plan, good communication
By Tristan Lejeune
Source: https://eba.benefitnews.com
If your promotion plan for your health savings account starts and ends with open enrollment, you’re losing enrollees and impact, two benefits experts maintain.
Jennifer Benz and Dennis Triplett are perhaps uniquely qualified to discuss education and strategy surrounding health savings account administration together, as their professional collaboration centers around developing exactly that strategy. Speaking to employers, brokers and providers last week at Benefits Forum & Expo, the communications expert and the UMB Healthcare Services CEO, respectively, shared techniques for maximizing enrollment and effective account management.
“We began working with Jen and her staff a couple years ago around the whole notion of communication, which we see a deficit of, honestly, in the success around HSAs,” Triplett said.
Speaking at Benefits Forum & Expo in Phoenix, the pair said there are two key aspects of maximizing HSA potential: attractive plan design and effective communications. And one of the simplest parts of each, according to Benz, is getting the name right.
“We see a lot of companies hanging onto these really confusing or counterintuitive plan names,” Benz said. “So if you call the health plan the HDHP or you call it the Catastrophe Plan or you call it the high-deductible plan, you know that’s not super, super appealing.”
Triplett emphasized letting the plans sell themselves. Employers should make sure their HSA actually has features like tax breaks and a catch-up contribution for older workers and then just present them accurately and engagingly.
Benz agreed, saying that a “robust, ongoing education” was far superior to trying to cram information in in the weeks and months leading up to enrollment.
“We know how to get people into these plans for the most part – you promote the heck out of the plan during enrollment, you give people a million different ways to understand the plans, you give the personal testimonials, you give them cost calculators, you give them great scenarios, you make the plan really attractive in terms of how the contributions stack up and you make that really clear, but a lot of companies just stop at that point,” she said. “Where it really comes to getting the most value out of consumer-driven strategy is getting people to use those plans properly throughout the year.”
Triplett said far too many consumers treat their HSA exactly the same as a flex-spending account – treating it like there was no rollover and having a flat balance year to year -- and illustrating the differences between an HSA and an FSA should be included in communication efforts.
“I guess they have two letters in common, but other than that, there’s several differences,” he said, adding that it was providers’ responsibility to “reverse the tide” on FSA thinking by tailoring the HSA advances to specific employees: “Personalize the message as best you can, put a persona around it.”
The average cost of all future medical needs for a fresh retiree is some $240,000, Triplett said, “something that quite a few even financial planners overlook.”
“And that’s for people who are 65 today, so think about the person who is 40 today, what kind of expenses he or she is going to be faced with in retirement.”
The room, which included a first-time employer hoping to add HSAs as a benefit for his workers and an HR exec who said she struggles with getting the most out of her own plan, was asked to participate by coming up with pitches for a few hypothetical wage-earners, finding ways of marketing psychologically.
A young, healthy employee with low health costs, for example, could be told about the tremendous edge in interest accumulation (“This is something that we just can’t emphasize enough,” Benz said) that comes with starting young and saving for the days when pretty much everyone racks up medial costs. One provider also suggested that to such workers she makes the family pitch: saving not just for not-yet-existent problems, but for not-yet-existent people.
On the other side of the spectrum, an older worker could be informed of catch-up contributions and available transfers to beneficiaries.
When given the hypothetical scenario of an employee with a chronic condition who needs a large amount of health care and asked what the proper message for them might be, one woman shouted out “choose the PTO.”
Benz said knowing one’s audience, in this case one’s workforce, is crucial to getting through to them.
“Who is in your plan? How are they using their account? How are they using their health plan, and so forth,” she said. “Then we can look at the behaviors we want to change and be very, very focused on getting people to get the most out of their plans.”