Health Savings Accounts...A True Win-Win By: Charley Kennedy AIFA®, C(k)P®, QPFC
There has been a lot of positive momentum around health savings accounts (HSAs) for all of the right reasons.  Not only are they great long-term retirement savings vehicles for your employees, but they are a valuable tool in your health care-program arsenal.  A properly designed and communicated high-deductible health plan (HDHP) incorporating HSA contributions can incent behavior relating to the choice of a health-insurance option that is desirable for both the employer and employee.  


WHY THE BUZZ?


The tax advantages have been well documented.  The appeal of these accounts is that in most states, HSA participants have a triple-tax benefit.  Unlike defined contribution retirement plans, which incur federal and state taxes, HSAs offer tax-free contributions, tax-free growth on balances and tax-free withdrawals for qualified health expenses, making them a powerful savings and investing tool to address both current and future health-care expenses.  California and New Jersey are the only two states that do not offer tax-free contributions at the state level.  Both employer and employee save on payroll taxes.


Beyond the excellent tax advantages, the desirable benefits of offering employees an HDHP and HSA can vary, depending upon specific circumstances and organization size.  A major strength of offering an HSA program is flexibility.  Employers can be very generous and fully fund an HSA and also pay for the HDHP coverage.  Alternatively, employers can also use the flexibility of the HSA to allow them to reduce their involvement in benefits and put more responsibility in employees’ hands.


Employers generally include (and sometimes totally switch to) HDHPs and HSAs to save money on health-insurance premiums (or reduce the rate of increase) and encourage the concept of consumer-driven health care.   HDHPs, with their high deductibles, are usually less expensive than traditional insurance.  The trend toward consumer-driven health care places the responsibility on employees for the relatively high deductible.  As a result, employees may be more careful and diligent with their health-care purchases. Combining this with an HSA where employees can keep unused money increases employees’ desire to use health-care dollars wisely since it is their own money.  Employees with lower utilization can also save money on their premium costs.


The lower administration burden is also a benefit that goes unrecognized by employers.  Given the individual account nature of HSAs, much of the administrative burden for HSAs is switched from the employer (or paid third-party administrator) to the employee and the HSA custodian as compared to many health FSAs and HRAs. This increased burden on the employee is viewed as a positive.  Employees gain more control over how and when the money is spent, enjoy increased privacy, and have the ability to add money to the HSA, outside of the employer.


ACHIEVING HSA SUCCESS


If you are able to empower your employees with the ability to save on their tax bill and give them more buying power while simultaneously providing the means for building a retirement savings nest egg, you have made a compelling case for a very happy employee.  If you can save money in the process, that is a big win-win!
 
Yet despite the momentum, there are still many employers small and large that do not effectively utilize or deploy an HDHP and HSA strategy to its full potential.  Yes, there are obstacles.  There is still a certain stigma with HDHPs.  Employers struggle to balance contributions to fund HSAs versus retirement matching contributions.  Integrating a cohesive strategy to educate employees on the advantages of selecting an HDHP and utilizing an HSA for retirement accumulation can also be tricky, as they generally require multiple subject-matter experts and a customized education effort versus just utilizing off-the-shelf content from providers.  The education is further challenged, as it needs to be delivered during open enrollment and can get lost in the shuffle.


Recognizing and overcoming these challenges is easily done with the help of your trusted advisors.  Helping employees understand how an HDHP and HSA can benefit them is critical to achieving your design goals.  Unfortunately, it is an area where employers struggle the most.  Increasingly, the education support is coming from your retirement-program advisor, while plan design analysis is still the domain of your benefits broker.  Orchestrating a cohesive education strategy is paramount to fully realizing the potential of your HSA program.    
 
Charley Kennedy

Charley is the Managing Principal of Fiducia Group. He is a member of Fiducia Group’s Investment Committee and is the firm’s service partner liaison. Charley consults with clients on investments, fiduciary responsibility, vendor price negotiation, vendor searches and participant advocacy.

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