The 2018 PLANSPONSOR National Conference this year included, for the first time, an entire morning dedicated solely to the topic of health savings accounts (HSAs).
Judging by the impressive number of questions and the deep level of audience engagement throughout a series of detailed presentations, it is safe to say that HSAs are top-of-mind for retirement plan sponsors and human resources (HR) professionals. Many said they are actively seeking advice on the best ways to implement and manage HSA programs—how to link these to more traditional approaches to workplace health insurance and to the employer-sponsored retirement plan.
Broadly speaking, employers in attendance said they see the pairing of HSAs with high-deductible health plans (HDHPs) as one of the few pathways to control medical costs in the short-term while also supporting and attracting skilled employees. The employers at the HSA boot camp, admitting they need more education themselves, also clearly voiced concern that their employees do not really understand what HSAs are or how they are meant to function alongside an HDHP.
Indeed, as noted by Ed Shehan, senior vice president and institutional HSA sales consultant with Bank of America Merrill Lynch, 76% of employees responding to a recent survey conducted by his firm reported they have a good understanding of HSAs, but only 12% passed a simple quiz on the topic. Shehan noted that complacency is not an option here. The HSA market has grown tremendously, from $1.7 billion in 2006 to $45 billion today, with roughly $8 billion of these dollars invested in the equity and bond markets. All signs are that the growth will continue, he said.
Perhaps the most important and the easiest myths to bust involve the deductible and out-of-pocket maximum limits set around HSA access. This year, to qualify as a high deductible health plan, a solo plan only requires a deductible of $1,350, and a family plan requires a deductible of $2,700; these are paired with a maximum out-of-pocket limit for single-coverage plans of $6,650 and $13,500 for family coverage.
“Employers that we speak with are often surprised to hear how low these limits actually are,” Shehan explained. “Many plans out there that are not thought about as HDHPs could actually qualify for pairing with an HSA.”
Shehan said there is a lot of complexity in the HSA marketplace—just as much or more as exists in the defined contribution (DC) or defined benefit (DB) plan domain. This showed in the significant number of questions that attendees had, ranging from uncertainty about how tax dependents can or cannot leverage HSA assets to very granular inquiries about the interaction between HSAs and flexible savings accounts (FSAs). With so many questions hanging in the air, Shehan said it clearly makes sense for DC and DB plan advisers to grow far more active on HSA consulting and education.
“For those learning about HSAs for the first time, one of the keys is to understand there is one set of rules for money going into the accounts, and another set of rules for money moving out,” Shehan explained. “When you get down to the granular-level examples of individual’s unique circumstances and how they may best move money into or out of an account, it’s best to consult an adviser or, even better, a tax attorney, if there is any uncertainty about how the rules may apply.”
Another misconception that Shehan said he sees a lot in the marketplace is that individuals assume it is just as effective to save for retirement health care expenses in a 401(k) as it is to do so in an HSA.
“This is just flatly an inaccurate understanding of the situation, and it fails to take into account that HSAs are triple-tax advantaged, rather than just double-advantaged as is the case with a 401(k),” he warned. “What I mean is that, if you are going to use a 401(k) plan to pay the average retirement health care bill of $265,000 for a married couple, you will actually need to draw down more than $340,000 from the 401(k), when you take income taxes into account. If this money is drawn from an HSA in retirement and spent on qualified care, you won’t pay a dime in taxes.”
The HSA boot camp also included a presentation from Kevin Robertson, who serves as senior vice president and chief revenue officer for HSA Bank. Like Shehan, Robertson said the evidence is clear that the HSA market is growing, and strongly. One important message he had for employers and HR staff is that “the compliance requirements of running an HSA program are pretty much the same with 100 employees or 10,000.”
“It’s just like the retirement plan; the level of support and resources available to different sized programs will vary, but the principles of good management are the same,” Robertson suggested.
From his perspective, he said the most successful HSA programs are those in which the employer adopts “multi-year thinking” in the design and ongoing administration.
“We like to speak about the creation of a new program as taking place across five distinct steps,” Robertson explained. “First is the heavy lifting of the design, then communication and implementation. Third is promotion of contributions, from the employees but also from the employer. Finally, you move into ongoing management and proactive reporting. A skilled consultant can help guide employers through each of these steps.”
Shehan noted that the implementation of an employer contribution to the HSA brings some significant new documentation requirements having to do with what is called a “125 plan cafeteria plan document.” But he strongly emphasized that the offering of an employer contribution is one of the most powerful ways to get a strong program up and running, about which employees will care and understand its value.