In January, the health savings account celebrates its 10th anniversary. The savings vehicle not only offers employees medical savings by using pre-tax dollars, it also serves as a retirement benefit for future health care costs.
HSAs offered through high deductible health plans offer savings for employees and employers alike and have increased the popularity of consumer driven plans by complementing the benefit and making the high deductibles more attractive to consumers.
Employers are saving an average of $1,500 per worker in HSA-qualified health plan premiums, according to a 2013 survey by Kaiser and HRET. In 2012 alone, the Wells Fargo-administered HSA program saved U.S. businesses an additional $25 million in payroll taxes. This year, the total savings will top $40 million.
Employees also benefit and can save up to $25 or more on each $100 in HSA contributions and can build a safety net for retirement medical expenses. These accounts offer triple-tax savings for employees, including tax-free contributions, tax-free earnings from interest and investments, and tax-free payments for qualified medical expenses.
2014 is also the first time that open enrollment is happening on two fronts, both through employer-sponsored plans and through national healthcare exchanges. HSAs are likely to play an important role in each enrollment process and grow the number of account holders significantly.
Its the product of the future that employers are rolling out as a benefit," says Liz Ryan, executive vice president and head of Health Benefit Services for Wells Fargos Treasury Management group.
Approximately 9 million consumers hold HSAs nationally, says Ryan. And as of third quarter 2013, Wells Fargo totaled over $1 billion in HSA assets and nearly 400,000 account holders.
Why is the benefit so popular? Ryan believes that HSAs can complement retirement and health care education and further drive employee engagement with their benefits and savings plans. Employees have come to identify the HSA with their 401(k), broadening its potential.
The product has also changed how employees make benefits and health care decisions.
Rather than communicate in piecemeal how to become better health care consumers, we introduced the HSA and started an education program that allowed us to talk to them about becoming a consumer, as well as being a vehicle that would [save money in their pockets]," explains Andrew Cole, vice president of HR and organization development for Alter Trading.
At Coles company, a scrap metal recycling company with 52 different facilities across the Midwest and five U.S. trading sales offices, HSAs helped attract and transition employees to consumer-driven plans.
When the 116-year-old company introduced a HDHP plan in addition to their PPO plan last year, conversion rates far exceeded their expectations. Instead of getting 5% to 8% of employees switching to the HDHP as they hoped, they had 18% of workers transfer to a HDHP plan with HSA. And this years preliminary numbers suggest the convergence will be even higher.
Cole says these plan designs attracted young and old workers alike in their population of over 1,200 employees.
For people on both sides of the spectrumthose that engage a lot with our health care system and those that do not, such as the younger populationthe HSA for multiple different reasons made more sense for them," he explains.
Their employee base mostly consists of older workers, some of whom have worked there for over 30 years. Though the average age is 45, as retirements increase, they are hiring more young people.
With young folks in particular, theres an interesting mind shift in the U.S., especially along with the Affordable Care Act. They question the stability [of the system] and whether they can depend on Medicare and Medicaid when it gets to their time to retire," Cole explains. He and his team explain to the younger generations how the HSA can save them money for health care in retirement without the tax burden, which is attractive to the youth who arent counting on government programs to sustain them when they retire.
The talking points around building a health care nest egg resonate with younger populations. And companies like WageWorks use this concept through virtual and online awareness to build engagement, such as through virtual benefit fairs.
On the other side of the spectrum, senior employees who are closer to their retirement see the value of the HSA and the 401(k) as separate but equally important savings vehicles.
They want to know that they can depend on it, says Cole. In order to keep funds in HSAs robust, they typically have less risky investments than what they might be prepared to do with their 401(k).
Alter Trading education sessions always involve spouses as well and, as Cole says, for all of our employees regardless of age, they see the advantage immediately."
The company has seen advantages as well, as more employees research cost differentials and providers to make the most valuable decision. Theyre not sacrificing their medical care, but they are asking more questions and getting better pricing, he explains, which saves money for the companys self-insured plan.
The employer contributes $500 to $1,000 into an HSA account on behalf of the employee, and then, they match dollar for dollar of the employees contributions to quickly grow the account.
Were trying to help employees get some dollars and cushioning into the account so that if they have an emergency and need to draw from it, its there," Cole says.
Cole believes the critical thinking that accompanies these plans will save them money (such as employees asking their doctors about generic medication alternatives) more so than the design of the plan itself.
Im not convinced that the higher deductible itself is going to lower cost. Whats going to lower the cost is the fact that the employee is seeing it and feeling [the spending and savings] directly in their pocket and that mentality will drive lower costs," he says.
Cole has developed a four-year plan for Alter Trading, for which they are two years in. In 2014, he will introduce a wellness step program to encourage active lifestyles. Eventually, they will match employees money in the HSA for those taking action to stop smoking or who participate in a step exercise program. This strategy will show the direct correlation between wellness and health care savings.
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