Healthcare benefits are becoming an increasingly more important component of employment as costs continue to rise and healthcare continues to be on the minds of many. By continuing to focus on their benefits offerings companies have an opportunity to make themselves a more attractive employer. Offering flexible health plan options is one way companies are achieving this, for example offering a high-deductible healthcare plan (HDHP) coupled with a health savings account (HSA). About half of companies today are extending the offer of an HDHP and HSA to employees, and about 60 percent of employees are taking them up on that offer.
Realization of Health Costs Sinks In
For more than a year and a half, many have been hyper-focused on health and potential related financial impacts due to the COVID-19 pandemic and its associated risks. More than ever before, people are now thinking about how they would handle a significant, one-time health-related medical expense‡. The cost of medical care and unanticipated hospitalization has always impacted many but now is prominent in even more minds.
This shift in thinking has increased awareness of HSAs as a practical way to offset significant medical expenses or even pay for them completely. As a result, companies are starting to showcase their HDHP and HSA offerings to employees as a way to to give employees more control of their own healthcare spending and potentially bring down employer costs as well.
Incentivizing HSA Participation
Some employers offer seed money as an initial contribution or a company match as an incentive to increase participation. This could be appealing to younger employees who are recognizing the triple tax advantages‡ of HSAs as a long-term savings strategy. According to the 2020 Devenir & HSA Council Demographic Survey‡, millennials have embraced HSAs with almost 1 in 5 Americans in their 30s having an HSA.
A company match can increase an employee’s willingness to enroll in a HDHP paired with an HSA and monthly company contributions can help employees to be more engaged. Increased participation in HSAs promotes both better health and financial outcomes in the short and long term.
UMB has been incentivizing its own associates to open HSA accounts using seed money for quite some time putting $1,000 into every HSA account opened. By showing employees how much money they can save choosing a HDHP with an HSA, employers can continue to boost participation. For example, if an employee subtracts the seed money or company match from their annual deductible, it may be surprising how low the annual deductible actually is.
What is best for your company?
Help employees take advantage of a HDHP paired with an HSA by discovering what the best course of action is for your company. The approach for every company will be unique, but these are some recommendations to consider.
Incentivize adoption. Consider providing seed money or a company match for the first year an employee takes advantage of a HDHP coupled with an HSA.
Focus on education. You can also educate your employees about HSAs as a retirement savings vehicle—HSAs can be compared to a Roth IRA for healthcare expenses. Prompt your employees to take advantage of the investment component of HSAs. Once an HSA balance reaches more than $1,000, they can begin investing those dollars. It is also important to share the triple tax-advantage that comes with an HSA, meaning:
- They can contribute pre-tax1;
- Their money grows free of taxes;
- When they take the money out, they aren’t taxed on gains.
As we look ahead, companies should take time to evaluate what worked and what can be strengthened to improve their benefit plans and stay competitive in this landscape. Continuing to promote the adoption of HSAs as an added health benefit is a great place to start. Through education efforts to show employees the cost reducing benefits of HSAs, offering seed or match contributions to accounts, and focusing on empowering employees, employers can continue to increase participation in HSAs while providing employees with a way to plan for health expenses.
1All mention of taxes is made in reference to federal tax law. States can choose to follow the federal tax-treatment guidelines for HSAs or establish their own; some states tax HSA contributions. Please check with each state’s tax laws to determine the tax treatment of HSA contributions or consult your tax adviser. Neither UMB Bank n.a., nor its parent, subsidiaries, or affiliates are engaged in rendering tax or legal advice. Withdrawals for non-qualified expenses are subject to income taxes and a possible additional 20% penalty, if you’re under age 65.
Learn more about UMB Healthcare Services, which ranks fifth in total accounts and seventh in total deposit and investment assets among all HSA providers (Source: 2020 ‡Year-end HSA Market Statistics & Trends Report‡).
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