How advisors can help improve cost reduction and employee retention
by Ann BriskMs. Brisk is Senior Vice President, Director of Strategic Partnership Growth with HSA Bank. Visit www.hsabank.com.
A Health Savings Account (HSA) is the most tax-advantaged way for individuals to save and pay for healthcare expenses.
However, as of September 16, 2021, according to research conducted by Devenir, the estimated $92.9 billion held in HSA accounts represents only about 36% of eligible employee participation.
It is clear that employees who take advantage of all that HSAs have to offer are able to better manage their healthcare expenses and accelerate their retirement readiness. For employers, a compelling benefits program that includes a high deductible health plan (HDHP) with an HSA can improve the bottom line through cost reduction and employee retention.
So, how can advisors help your employer clients encourage their employees to actively engage in their healthcare decisions? While there are many answers, the underlying approach remains the same: increase employee confidence and trust through clear, consistent communication, guidance and education of healthcare benefits and options.
Benefits of HSAs for Employees and Employers
In conjunction with a HDHP, HSAs can save employers significantly in the long run. By covering a portion of their employees’ monthly premiums, employers will encourage participation in the health plan and pay less per month in healthcare costs, and contributions to employee health savings accounts qualify as a business expense.
The best way to encourage employees to take advantage of HSAs is to educate them on the benefits, most notably the triple tax savings. HSAs are the only account individuals can put money into, invest and gain interest on, and use to pay for IRS-qualified healthcare expenses, all tax-free.
- Employee contributions are tax-deductible (or pre-tax, if made through a payroll deduction)
- The money can be invested and grows tax-deferred, and withdrawals used to pay medical expenses are tax-free
- Unlike a 401(k), employees do not pay income taxes on withdrawals as long as they are for qualified medical expenses
Another important point to highlight is that for their employees, unlike other accounts, funds in an HSA stay with them regardless of whether they change jobs, if they are furloughed, or when they retire. HSAs roll over from year to year, and after age 65, funds can be used for any purpose without penalty (income tax is only assessed if funds are used for non-health-related expenses).
HSA investing is a growing trend. Employers and employees alike would benefit greatly from treating the HSA as both a long-term health savings and investment tool and part of an employee’s retirement plan.
According to Devenir’s 2021 Year-End HSA Research Report, there are now almost 2 million accounts that are investing a portion of their HSA dollars. Encouraging employees to save in their HSAs not only promotes employee health and financial well-being, but it helps employers achieve near- and long-term cost savings, as well. Consider bringing the investment opportunity with HSAs to the forefront of the conversation to spotlight its potential to shape and secure both employer and employees’ health and financial future.
Encourage Enrollment, Especially in the Continued Pandemic Environment
Nearly two years into the COVID-19 pandemic, and it has never been more important for employers to help employees and their families prepare for a healthy financial future, as well as any unexpected bumps in the road along the way.
In general, employees tend to renew the same healthcare plan they have chosen in previous years, leaving most to lose out on potential savings. Given the increased focus on personal healthcare and savings, it is crucial for employees to proactively review and update their healthcare benefits to avoid paying for unnecessary coverage.
Year-long education helps remind your employees of their healthcare options and costs so that during open enrollment periods they can make smart decisions for their healthcare now and in retirement.
Encourage employers to reach out to employees regularly via multiple channels to make sure they understand the tax advantages and versatility of a HDHP with an HSA. Broadly communicate information about various plan options, and the benefits from enrolling in each option. For example, with an HDHP and HSA, employees might have access to lower premiums, tax free savings, and greater control over healthcare finances.
When reviewing open enrollment and benefits communications, employers may also want to consider:
- Tailoring your Approach: Factor in different generational needs before deciding how to approach virtual communications and engagement with employees. For example, Gen Z or Millennials may find a video or graphic particularly engaging, while a Gen X or Baby Boomer may prefer a small group or one-on-one session.
- Including all Decision Makers: Encourage employees to involve spouses and family members in their healthcare decisions.
- Encouraging Preventative Care: Since many of us have skipped check-ups, teeth cleanings and other preventative care appointments during the pandemic, reminders and additional education on what is covered and where to go for more information might help employees resume these important habits.
- Mental Health Tools: Encouraging employees to take care of their mental well-being, whether through a meditation or sleep improvement app or with virtual therapy or counseling, can help boost overall health, wellness and productivity.
Telehealth Options: Virtual visits allow employees to easily manage appointments within their schedules and decrease the risk of exposing others to colds and viruses.
- Seeking Feedback: Following open enrollment, employers should solicit as much feedback as possible on the process.
- Then, using those learnings, consider how to incorporate ongoing year-long benefits education for employees. Just the act alone will help make employees feel valued and part of the process.
Another way employers can encourage enrollment in a HDHP with HSA is through changes to their plan design, such as offering incentives or matching contributions. An HSA incentive structure such as matching or seed contribution encourages an “active” employee role, similar to 401(k) matching programs. This type of structure can significantly increase HSA account balances, save employers money, and improve the perceived value of benefits and retirement readiness. Encourage employers to offer HSAs with automatic or earned money as further incentive for employees to enroll in high-deductible health plans and contribute their own money to their HSAs.
Decision Support: Help Employees “Do the Math”
According to the fourth annual HSA Bank Health and Wealth Index℠, only 15% of respondents regularly save money for future healthcare expenses.
Employers can help employees manage their healthcare finances by “doing the math” – encouraging the use of benefits guidance tools. Interactive tools enable employees to balance decisions more easily with expenses because they can actually “see” them. When employees directly calculate the costs of their own plans, they can more clearly recognize the long-term value and cost effectiveness of HSAs and HDHPs. For example, if a 30-year-old starts investing in an HSA, he can easily save over $100,000 by retirement to pay tax-free for medical expenses.
Decision support tools also offer various ways to help employers reduce overall healthcare expenses for their employees. HSA Bank, for example, offers several online calculators to help employees select the best health plan from a total cost perspective.
Decision support tools, including financial well-being tools to help employees estimate tax impacts, current and future health care costs, and longevity needs go a long way toward helping employees determine at what age they can achieve financial independence.
When it comes to benefits education and communication, the past year and a half has shown that being adaptable and inclusive is paramount. There has been unprecedented demand for ways to control costs and help individuals make the most of their healthcare dollars. Creating compelling and impactful communications can give employees the information and tools they need to make confident decisions and have a physically and financially healthy year.
Many trends seem likely to continue:
- Last year’s shift to a largely virtual education and open enrollment process proved that employers can and should adapt to the changing environment and look for new ways to engage employees in their healthcare benefits.
- Similarly, telehealth seems here to stay. The CARES Act, which was passed in 2020, allowed HSA-qualified HDHPs to cover telehealth services before reaching the deductible without impacting their eligibility for an HSA. While the extension is valid until December 31, 2021, it is expected to be made permanent based on the ease-of-use telehealth gives consumers.
- The focus on HDHPs and HSAs will likely increase. HSAs are evolving and providers will continue working with legislators on significant bipartisan proposals that could affect both their application and advantages, such as decoupling HSAs from HDHPs and allowing Medicare enrollees to open and contribute to HSAs.
With more knowledge, advisors can help both employers and employees best utilize HSA plans to maximize health and savings, especially important as we continue to contend with challenges imposed by the COVID-19 pandemic.