Client Service

Plan Sponsor and Participant Clients Thirsty For HSA Guidance

Fourteen years after HSAs first hit the scene, there are still fundamental misunderstandings about how they work.

By Judy Faust Hartnett | March 30, 2017
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As the cost of health care increases, many employers are shifting to health plans that include a lower monthly premium and a higher deductible.

In 2016, 29% of all insured employees were enrolled in high deductible health plans (HDHPs)—an increase of 9% since 2014, according to the Kaiser Family Foundation. HDHPs now appear in three out of every five large employer benefit offerings, but PPO plans remain the most popular choice for employees, with 43% enrollment in the last year according to the second annual State of Employee Benefits report from Benefitfocus.

Often, employers offer health savings accounts (HSAs) along with HDHPs to enable employees to save money tax-free for medical expenses that roll over year-to-year and can help fund the employee in retirement. Balances in health savings accounts (HSAs) grew by more than one-third in 2015, according to the most recent results from the Employee Benefit Research (EBRI) HSA database.

According to the U.S. Treasury, HSAs were created in 2003 so that individuals covered by HDHPs can receive tax-preferred treatment of money saved for medical expenses. Fourteen years later, according to Alex Tolbert, founder and team member of Bernard Health, a health care advisory group in Nashville, Tennessee, there are still misunderstandings about these plans due to employers presenting them in a less than optimal manner during open enrollment. He says this leads to savings account underutilization by employees who may not understand the full benefit of an HSA.

A first tier issue, according to Tolbert, is that when employers compare the various health plan options that employees can elect, instead of describing the health plan piece of an HSA-eligible plan, they discuss the tax incentives related to the savings account.

“The biggest mistake I see is that when employers are explaining eligible health plans, they are comparing apples to oranges,” Tolbert says. “They’ll talk about the health merits of non-HSA eligible health plans and emphasize the savings account for the HSA eligible plan while the bank account really ought to be treated like the cherry on top, rather than how the health plan is discussed.”

Similarly, Bernard Health does not recommend calling these plans “high-deductible health plans.” “Mention high deductibles, and many of those same employees are tuning you out right away,” Tolbert says.

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