We’ve seen a recent influx of articles addressing the growth of consumer-driven health plans (CDHPs) in recent weeks, which are high deductible health plans (HDHPs) with consumer savings options, such as tax-advantaged health saving accounts (HSAs). While there has been significant growth over the past decade, some say this growth may have plateaued.
One obstacle to strong growth is the lack of effective consumer education, which employers, employee benefit providers, and financial organizations can all play a roll in.
Growth May Be Slowing
The Kaiser Family Foundation conducts an annual employer health benefits survey. To quote the 2018 Employer Health Benefits Survey summary, “The growth in HDHP/SO enrollment has stalled over the past three years, which may be a sign of employer reluctance to rock the benefits boat for their workers.” Kaiser’s survey shows that HDHPs that are combined with savings options (HDHP/SO) have grown significantly over the years, but growth has recently slowed—29% of workers are enrolled in HDHP/SOs, and this estimate has held steady for the past three years.
Survey results can vary, however, based on the survey sampling. The 2018 National Survey of Employer-Sponsored Health Plans by Mercer puts CDHP coverage at 38%.
The recent concerns of flat growth have caused some question about data and trends. Regardless of recent figures, the clear message is that HDHPs are here to stay and will continue to be part of the nationwide offering in the foreseeable future. Providing consumers with focused information and education on HDHP/HSAs will help them become more successful in using their HSAs effectively.
Lack of Understanding
Seventy-six percent of employees surveyed in the Bank of America Merrill Lynch 2018 Workplace Benefits survey stated they understand how their HSA works. But only 12% could correctly identify the common attributes of an HSA. This lack of understanding supports a common misconception—that employers that offer an HDHP also offer an HSA as part of the package. Healthcare Trends Institute’s 2017 Healthcare Benefits Trends report says that only 58.9% of employees are offered an HSA or FSA option through their employer. Only 52% of those who are offered the option actually enroll and defer. The SHRM 2018 Employee Benefits survey had a similar result with 56% of employers offering an HSA option.
This shows that 44 to 48% of consumers covered by HDHPs do not have access to HSAs through their employers, and 27% of those who have access do not elect to enroll. Thus, about 75% of those covered by an HDHP do not use an HSA to help offset their deductibles and out-of-pocket expenses. It doesn’t take long to conclude that those individuals likely suffer some anxiety about covering medical expenses. It also illustrates the lack of education the general public and employers have about HSAs.
Tax Benefits of HSAs
HSA tax benefits are significant, but do not begin until the HSA is established.
- Contributions, whether made through payroll deferral or directly to an HSA at a credit union, reduce an individual’s taxable income by the amount of the contribution.
- Earnings on those contributions also grow tax-deferred with the potential of being tax-exempt.
- If the contributions and earnings are used for qualified medical expenses (which are numerous), the distribution is tax-exempt.
Unlike flexible savings accounts (FSAs), there is no use-it-or-lose-it rule, regardless of how the contribution is made or where it is held. HSA owners always retain control and use of their HSA assets, even when they leave their employer.
3 Types of HSA Users
There generally are three types of HSA users. Understanding each will help you educate potential clients.
The Spender – These individuals are using their HSA contributions immediately to cover deductibles and out-of-pocket expenses. They benefit from tax-deferred HSA contributions and the tax-exempt distribution, even if they simply run the money in and out of the HSA. Spenders can benefit by learning that any accumulated money in the HSA can be used later. They will always have their HSA savings, even if they become ineligible to continue contributions later.
The Saver – This group has learned the lessons of the Spender and has allowed money to accumulate in HSAs. Further education can be beneficial for Savers. They might not be aware that they can reimburse themselves from their HSA for any qualified expense that they paid in the current or earlier years, but after the HSA was established. They should be sure to retain their medical receipts. Or they can continue to build their HSA savings to cover out-of-pocket expenses in future years.
The Investor – This group views their HSAs as long-term savings tools for future medical expenses, including medical expenses they will incur during retirement. At age 65, they can use their HSA savings also for long-term care expenses and to repay themselves for Medicare premiums that come out of their Social Security checks. Also when reaching age 65, HSA assets can be used for non-medical purposes. Such distributions will be subject to regular income tax, but not the additional 20% penalty tax associated with nonqualified medical expenses. This group also should be reminded of the ability to reimburse themselves for prior-year qualified medical expenses, tax-free.
But this evolution in HSA benefits does not occur if consumers don’t learn of the benefits. Your average members today are busy with their daily lives trying to make ends meet, and many don’t seek this information on their own. They need someone to bring it to them. This education can be provided through a benefit open enrollment meeting, when they open their accounts, through online resources, or even through a seminar.
A proven case—Optum enhanced their website and educational content. They sent targeted messages to customers about HSAs and the tools on their website. This resulted in a 26% increase in one-time contributions, a 12% increase in average balances, and a 23% increase in investment account openings. Optum is HSA-focused and is able to dedicate more resources to this than the average credit union, but the concept shows the power of education. You know your member base and your local employers better than a national firm, and can determine your best methods for HSA education.
Another case—a private firm I have worked with provides an employer contribution, an HSA overview every year during open enrollment, and access to on-going benefit education. This 2,200 employee firm offers two HSA-eligible HDHPs. More than 91% of their employees made HSA deferrals through payroll deduction and 13% made maximum HSA contributions in 2018. Those combined deferrals will account for nearly $3.7 million in contributions to the HSAs this year.
Health savings accounts have the potential to help with near-term medical expenses. They also can be as effective as an IRA, a 401(k), or a 403(b) plan in solving long-term financial needs. It is up your organization to push these lessons to your clients and spread the message of HSA savings benefits. A little effort will go a long way and can result in positive consumer loyalty for your organization.