Plan sponsors offering a health savings account must contemplate complex questions and remain accountable, as not all employees will be eligible for contributions if they have overlapping coverage

HSAs have complexities that employers must grapple with for the benefits to be useful, according to experts who spoke during the recent PLANSPONSOR webinar: Your HSA Questions Answered.

Employee education is key, says Liliana Salazar, chief compliance officer for the Pacific Region, at insurance broker HUB International Limited.

“HSAs are relatively simple accounts but the complexity is what other benefit programs are these employees accessing,” she says. “An employee who is eligible for Medicare but has not enrolled in Medicare, can still make and receive contributions to an HSA. The employee who has enrolled in Medicare Part A, B or D or C is ineligible to receive or make contributions.”

The decision to offer a  high deductible health plan and HSA is just the first challenge. Accounts then must be created, open and accessed by employees.

Age is only a number, to some, but for plan sponsors, it’s a critical first step and an important factor in whether to incorporate the HSA benefit, adds Jamie Greenleaf, senior vice president, retirement and wealth, at OneDigital.

“Review the demographics of your organization and if [employees are] older, high-deductible health care plans may not be as advantageous to that demographic,” she says. “They may not be eligible depending on their age, and their enrollment into Medicare. They may not benefit from the HSA.”

Salazar agreed that examining plan demographics is a good start.

“Identifying your population, understanding their needs and what other type of period they have access to [is important],” she says. “Having a better understanding of your population will enable you to develop a communication strategy that educates and empowers employees to make the right decisions once you anticipate rolling out your HDHP with your HSA compatible plan.”

The first HSA question is distinct because the health benefit must be paired a high-deductible health plan that is HSA compatible, Salazar says. HSAs can add to the arsenal of employee benefits, by offering workers a saving and investing benefit for health care and qualified expenses.  

Plan sponsors must first decide whether to provide access to an HSA account administrator for employees, to help workers with opening accounts, adds Salazar.  

“The first question would be ‘are we offering an HSA account administrator to our employees to facilitate the creation and opening of those accounts’? Or will we be asking employees to set up their own HSA accounts,” Salazar says. “The issues associated with not offering a vendor to assist with the creation of the HSA accounts is that the employer contributions to an HSA account is a lot more nuanced if you choose not to offer HSA program access to your employees.”

Plan sponsors’ next question is if the employer will provide funds for so-called ‘seeding’ the account, Salazar explains. 

An employer that does decide to provide funds or matching contributions to employees’ HSAs must select what amounts and the portion of the high deductible that will be funded by the employer, she adds.

Plan sponsors offering an HSA must observe that regulations for overlapping coverages are met, as well. 

“Other questions that employers should certainly consider include ‘are we going to offer our employees unlimited purpose, flexible spending accounts’? [Because] once you offer a [high-deductible health plan] that is HSA compatible, the employee may not have any other type of insurance that is not permitted insurance and that means that [a] full scope flexible spending accounts cannot be offered to those employees who want to make or receive contributions into an HSA,” says Salazar.

Plan sponsors can lower their litigation risk under the Employee Retirement Income Security Act by following guidance from the Department of Labor, explains Spencer Walters, partner at Ivins Philips and Barker.

“The Department of Labor has issued two different sets of guidance that address how HSAs can be exempt from ERISA,” he says. “If the employer is contributing to an HSA, the arrangement has to meet several requirements, one of which is that the employer cannot make or influence the investment decisions with respect to the HSA funds.”

Employer HSAs’ that are subject to ERISA become potential lawsuit targets, he adds.

“There’s quite a bit of question about exactly what level of involvement in choosing investment options under an HSA might make the HSA itself subject to ERISA. That would come with a couple of consequences,” Walter says. “One … you’d be the potential target of ERISA fiduciary breach claims like on the (401k) side.”

Notwithstanding the litigation risks and mitigation tactics, plan sponsors must also observe important disqualifying coverages for contribution to an account, Barker adds.

“The Department of Labor has also said specifically that you could mimic the investment lineup you have in your 401(k) plan without running afoul of the ERISA exemption,” he adds.

While heath care and retirement benefits have traveled some of the same roads, the benefits are quite different, and have distinct challenges, adds Jamie Greenleaf, senior vice president, Retirement and Wealth, OneDigital.

“When we had pension plans, the liability of funding your retirement was on the employer and the pension plan. And then we started these defined contribution plans—401(k)and 403(b) plans—and the liabilities for funding your retirement became an employee-based decision and that’s kind of what we’re seeing in health care. We’re moving from an employer-base[d] to an employee-based health care system where more of the liability and savings is passed on to the employee to save for with our health care benefits,” she explains. 

HSA account holders can also invest assets for growth. Similar to investing in a defined contribution retirement plan HSA account holders can select investments in a plan lineup. 

However, Greenleaf warns employers to treat employees’ HSA investments and retirement plan money differently, she adds.  

“I caution employers, be very careful about offering investment options to your participants through the HSA provider, because this is different money and you need to make sure that those employees are truly educated as to the risks of investments in an HSA account,” she says.