Because of increased transparency now available in the health care industry and employers’ opportunity to manage rising health care costs for their employees, speakers this week at PLANADVISER/PLANSPONSOR’s 2023 HSA conference touted the benefits of offering health savings accounts.
Besides the triple-tax savings benefits that HSAs offer, the business case to plan sponsors for offering HSAs lies in “empowering employees” and controlling health care costs by providing an employer contribution, said Monica De Agostino, human resources manager at MRIGlobal and one of the panelists in “The Business Case for Offering HSAs” session on Thursday.
“With HSA funds, you’re able to roll over your funds from year to year,” De Agostino said. “It really helps facilitate the ability to build up significant savings over time, and that provides a real sense of financial security.”
As health care costs rise due to inflation, many employers are managing employee health care expenses by offering a high-deductible health plan, in which workers pay a lower monthly premium but have a higher deductible. High-deductible plans are often paired with a health savings account as an additional benefit for employees.
More Transparency in Health Care
Panelist Jamie Greenleaf, senior vice president of retirement and wealth at OneDigital, told attendees that health plans have typically fallen through the cracks from a fiduciary standpoint because there has been little price transparency with which to benchmark costs. She said coverage providers typically did not disclose all the specific costs they were charging employers and where that money was going.
But following the Consolidation Appropriations Act of 2021, signed into law by President Donald Trump in December 2020, Greenleaf says employers have access to more information from their health care providers.
The prohibition on gag clauses, included in the 2021 omnibus spending package, prohibits health plans from entering into contracts with health care providers or others that restrict the plan from releasing specific data and information on price and quality that a plan can make available to another party. Now plans must annually, starting in December 2023, submit an attestation that they have not entered into any prohibited contractual restrictions.
“Employers now are not going to have reactive plan design; they’re going to be proactive because they’re going to go through a fiduciary procurement process on their health care plan to determine what’s in the best interest of their participants,” Greenleaf said.
Greenleaf explained that HDHPs can cost around $1,500 less in premiums than in other traditional plans.
Greenleaf also noted that claims are what drive health care costs for employer. For instance, if an employee decides to go to the emergency room when experiencing a health issue, it will likely cost more than if they go to a primary care doctor.
But with more transparency in the health care market, Greenleaf said this allows an employee to “shop for care” and search for less expensive procedures and doctors.
An HSA might also compel an employee to spend more carefully, and because an HSA is owned by the employee, De Agostino said the employee typically pays for its administrative fees. In addition, if an employee leaves the company and/or the health plan, they still own the HSA and take any associated fees with them.
On the employer side, De Agostino said employers do not have any responsibility (as they do with defined contribution retirement plans) to find missing participants after they have left the plan, because HSAs are individually owned. The employer is also typically not responsible for any additional administrative fees.
Greenleaf added that employers cannot limit employees to specific investment funds in an has, because actions like that could trigger an HSA becoming an ERISA-based account, and employers should avoid a fiduciary responsibility for the HSA account.
What About HRAs?
Whereas an HSA is owned by the employee, an HRA—health reimbursement arrangement—is owned by the employer. Greenleaf explained that an HRA can be offered in conjunction with an HSA.
According to Aetna, money in an HRA is provided solely by the employer and employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year. Unused amounts may be rolled over to be used in subsequent years. If an employee with an HRA changes or loses their job, any remaining amount in the HRA defaults to the employer.
Greenleaf said if an employer decides to increase its health plan’s deductible, with an eye toward overall savings and lower premiums, and allocates those savings as contributions to the HSA, employees may have higher out-of-pocket expenses. An employer could then put an HRA in place that allows employees to draw on it when needed.
“It’s almost like a parachute,” Greenleaf said. “You’ve got your HSA, and if [an employee] doesn’t use it, it stays with them and it grows. But if they get hit by the bus, they have the HSA contribution and the HRA account that they can access.”
Greenleaf also noted that an employer has to use a specific type of HRA that would be compatible with an HSA in order to link them together.
Best Practices for Employers
As HSAs can be a complicated topic for employees to understand, De Agostino said it is important to communicate with participants about the offering and its various features throughout the year, not just at open enrollment, and provide simple communication so as not to overwhelm participants.
“Don’t be afraid to make it fun,” De Agostino said. “Add some slogans, add some infographics. … Technology has also been wonderful in being able to provide short bites [and] videos.”
De Agostino said taking advantage of technology resources is important, as many people are working remotely or in hybrid arrangements.
When selecting an HSA provider, De Agostino recommended shopping around, evaluating the associated fees, considering the investment options available and partnering with a provider that has a good reputation and offers user-friendly tools.
Greenleaf encourages employers to not just “check the box” when selecting a provider, referring to selecting the HSA provider associated with their health insurance provider without doing due diligence. Because an employer may change health care carriers several times, Greenleaf said it is beneficial to choose an HSA provider separate from the carrier so employees do not have to deal with the painful process of changing their HSA account.
“You don’t want ‘carrier lock,’ where all of the tools are with the carrier, and when you have to change your carrier, now you’ve got disgruntled employees,” Greenleaf said. “I like unbundling the package, as opposed to bundling, because it gives [employers] a lot more flexibility.”