Educating Consumers About HSAs Is Good for Business
By Steve Christenson, Executive Vice President, Ascensus
Over the past decade, there has been significant growth of consumer-directed health plans (CDHPs), which are high deductible health plans (HDHPs) with a consumer savings option, such as the tax-advantaged health saving account (HSA). But some say this growth may have plateaued.
The Kaiser Family Foundation’s 2018 Employer Health Benefits Survey shows that while HDHPs that are combined with savings options (HDHP/SO) have grown significantly over the years, growth has recently slowed—an estimate of 29 percent of workers enrolled in HDHP/SOs has held steady for the past three years. The 2018 Mercer National Survey of Employer-Sponsored Health Plans, however, puts CDHP coverage at 38 percent.
One reason for the plateau may be a lack of effective consumer education on the part of employers, employee benefit providers, and financial organizations.
Recognize the Lack of Understanding
Of the employees surveyed in the Bank of America Merrill Lynch 2018 Workplace Benefits Report, 76 percent stated that they understand how an HSA works, but only 12 percent could correctly identify the common attributes of an HSA. This is a significant lack of understanding that supports a common misconception: employers that offer an HDHP also offer an HSA—and employees with HDHP coverage have and use an HSA. The 2018 Employee Benefits report by the Society for Human Resource Management found that of those employers offering an HDHP, 56 percent offer an HSA. The reality is that not all employees offered an HSA elect to enroll in an HSA; some, it appears from this statistic, would have to establish an HSA on their own. This may likely be because employers and the general public are not knowledgeable about HSAs.
Regardless of recent figures about the flat growth of HDHPs, these health insurance plans and HSAs are here to stay and will continue to be part of the nationwide health insurance offering in the foreseeable future. Providing consumers with focused information and education on HDHP/HSAs will help them use their HSAs more effectively.
Highlight the Tax Benefits of HSAs
The tax benefits of HSAs are significant, and should be clearly communicated to consumers.
1. Contributions, whether made through payroll deduction or directly to an HSA, reduce an individual’s taxable income by the amount of the contribution.
2. Earnings on those contributions also grow tax-deferred with the potential of being tax-free.
3. If the contributions and earnings are used for qualified medical expenses (which are numerous), the distribution is tax-exempt.
Unlike flexible spending arrangements (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 after they leave their employer.
Level of Knowledge Differs Depending on HSA Owner Type
Distinguishing between the three main types of HSA owners will help you understand and educate potential HSA clients.
These individuals are using their HSA contributions immediately to cover deductibles and out-of-pocket expenses. They benefit from tax-deferred HSA contributions and tax-exempt distributions, even if they simply run the money in and out of the HSA. Spenders benefit by knowing that any accumulated money in the HSA can be used later; that they will always have their HSA savings, even if they become ineligible to contribute later.
These individuals have learned the lessons of the “spender” and have allowed money to accumulate in their HSAs. More education can benefit “savers,” as they may not be aware that they can reimburse themselves from their HSA for any qualified expense that they paid after the HSA was established. They should retain their medical receipts. Or they can continue to build their HSA savings to cover out-of-pocket expenses in future years.
This group views their HSAs as long-term savings tools for future medical expenses, especially those that they will incur during retirement. At age 65 and older, they can also use their HSA savings for long-term care expenses and to repay themselves for Medicare premiums that come out of their Social Security checks. And upon reaching age 65, HSA assets can be used for nonmedical purposes. Such distributions will be subject to regular income tax, but not the additional 20 percent penalty tax associated with nonqualified medical expenses. This group also should be reminded of the ability to reimburse themselves for pre-65 qualified medical expenses, tax-free.
Efforts to Educate Consumers Will Make a Difference
Many individuals do not seek this information on their own. They need someone to bring it to them. This is an opportunity to be proactive in educating them, whether it’s through a benefit open enrollment meeting, when they open their accounts, via online resources, or even with a seminar.
Optum Bank® proved the case for this when it enhanced the educational content on its website. It sent targeted messages to clients about HSAs and the tools on its website. This resulted in a 26 percent increase in one-time contributions, a 12 percent increase in average balances, and a 23 percent increase in investment account openings. While Optum is HSA-focused and is able to dedicate more resources to this than the average financial organization, the concept shows the power of education.
Another example is a private firm that I have worked with, which provides an employer contribution, an HSA overview every year during open enrollment, and access to on-going benefits education. This large employer offers two HSA-eligible HDHPs. More than 91 percent of its employees made HSA deferrals through payroll deduction and 13 percent made the maximum HSA contributions in 2018. Those combined deferrals will account for nearly $3.7 million in HSA contributions for that year.
HSAs can help combat medical expenses, or be used as effectively as an IRA, a 401(k) plan, or a 403(b) plan in solving long-term financial needs. It’s up to your organization to push these lessons to your clients and spread the message of how saving with an HSA benefits them. This will go a long way toward increasing assets and consumer loyalty for your organization.