Learn the basics of Health Savings Accounts (HSAs) and determine if this type of consumer-driven health plan is right for your company.
Consumer driven health plans (CDHP) such as HSAs are a keen strategy for controlling costs and continue to gain popularity. In 2015, enrollment in consumer-driven health plans (CDHP) nearly doubled among large employers during the previous three years – from 15% to 28% of covered employees.
Small employers still trail but nevertheless experienced a modest increase over the same period – 17% to 19%. Overall, CDHP enrollment reached 25% in 2015. To understand the surge in growth, let’s first examine how they work.
HSAs as a Tax-Advantaged Benefit
Employers and employees view Health Savings Accounts (HSAs) as a smart way to manage health care costs. Here’s how it works: Similar to a 401(k) or IRA that you can use to save for retirement, an HSA is a savings account that employees can contribute pre-tax dollars that earn interest and be potentially invested.
Contributions can be taken straight from the employee’s paycheck, and some employers can pitch in and make HSA contributions as well. HSAs have contribution limits that are set by the IRS every year. For 2016, HSA holders can choose to save up to $3,350 for an individual and $6,750 for a family.
This money can be used to pay coinsurance, copays, deductibles and other qualified medical expenses - all tax-free!
HSAs Help Save for Retirement
Along with lowering taxes and easily paying for medical expenses, HSAs can help consumers save for retirement. This is a huge benefit that puts consumers in control of their hard-earned money.
Because HSA dollars grow tax-free and roll over each year, HSAs are a great tool for saving for retirement. After age 65, employees can withdraw money from HSAs for any reason with no penalties. Knowing that this account can be used toward retirement also plays into favorable consumer behavior.
According to a MckInsey & Company study, employees with an HSA plan are 50% more likely to ask about costs and 30% more likely to get an annual exam. The take-away? HSAs encourage employees think twice before touching HSA dollars and may even lead to healthier behavior.
HSAs Save Employers Money
Employers experience significant benefits utilizing HSAs as well. According to an NBER Study: Consumer-Directed Health Plans, spending is reduced for those companies offering CDHPs. Cost reductions are driven by spending decreases in outpatient care and pharmaceuticals.
This comes as no surprise, given that employees are 3x as likely to choose a less expensive healthcare option and 20% more likely to comply with treatment regimen with an HSA in play.
With such outcomes, it’s no surprise why HSAs are a great solution to tackling healthcare costs – and maybe even healthcare policy.
HSAs & The Affordable Care Act
According to Towers Watson, nearly all the best performing employers use account-based plans as one of their key strategies to not only manage costs but also hedge against an upcoming excise tax to be implemented in 2018 – know as the Cadillac Tax.
An Affordable Care Act (ACA) provision, the Cadillac Tax aims to dissuade employers from offering “high-cost” employer-sponsored coverage by imposing a 40 percent excise tax on an employee’s “excess benefit”. It’s hard to know which specific plans will be affected by the tax – but we do know that just 3 percent of existing health savings accounts would have to pay the tax in 2018.
While the outcome of the Cadillac tax provision is unclear, what is clear is that employers are acting now and exploring alternative options to providing quality coverage and care for their employees. From HSAs and self-funding to wellness programs and on-site clinics, a balanced strategy that meets short-term goals and long-term needs is key.
Are you exploring an HSA option? What are some questions you have about this benefit? Let us know in the comments below!