Stacking Pennies: How the wrong HSA partner hurts your employees and your benefit plan

Posted on February 3, 2020

Health Savings Accounts are one of the smartest ways to tame rising healthcare costs, and what were extremely rare plan designs just ten years ago (about 18% of employers under 1,000 employees) are now very (56% of employers) common, according to the most recent Kaiser Family Foundation study.

The health plans themselves are actually quite simple – for the overwhelming majority of claims, the member pays the negotiated cost of a service incurred before the annual deductible, and then in many cases nothing, or a small percentage (usually 10-20%) after, until the plan then pays 100% of costs for the year. Perhaps the most significant challenge is unfamiliarity with the idea that different providers and facilities can have significant variances in cost for the same service, and the health plan no longer buffers that difference behind a set copayment.

In exchange, members can create a special, tax-advantaged savings account that builds unused savings over time, reduces employees’ taxable income if withheld through payroll, gains interest tax-free, and can ultimately benefit the account holder all the way through retirement. More importantly, employees’ actual-dollar share of overall premium costs are also significantly lower nationally than on non-HSA plans – a fact that becomes extremely important when considering the rapid rise in premiums since 2009, which has outpaced wage increases and inflation. Assuming that both HSA and non-HSA plans both trend costs at the same rate, assessing the percentage increase against a lower overall premium will produce a smaller impact on the employee in terms of actual cost, and more importantly the dollar they spend on claims is the same dollar in the future, versus the same dollar being compounded annually as insurance premium.

This rapid expansion of popularity, however, has revealed three critical problems in HSA adoption:

  1. The January Problem: Unlike a Flexible Spending Account (FSA), members can only spend the money that is in the account at the time of purchase. Since, per the same Kaiser study, the average employee only saves about $1,200 annually ($100/month), a large bill at the beginning of the year is particularly challenging.
  2. Runaway Fees: While some HSAs have an investment component that can generate returns on the money in the account, the majority of accounts earn minimal interest, if any. A close eye on fees is absolutely critical, as expenses can eat up a significant portion of contributions. Some banks will charge fee averages as high as $10/month, meaning at 1% interest, your $100/month employee moves backwards by 9% every year they save, before inflation!
  3. Consumerism and transparency: In the early days of HSAs, it was virtually impossible to access information on healthcare costs – a linchpin of the consumer responsibility push that drove the HSA marketplace. Nowadays, access to pricing information is much improved, but many are still unaware of free, consumer-friendly transparency tools that can help them compare options.

So, what can employers do to mitigate these issues?

First, it is important to pick the right partner to consult with – and that means taking a hard look at who is helping your business analyze, forecast, plan and communicate through a complicated healthcare industry. As the old saying goes, the best way to miss the target is to not aim at it, and the only thing that gets smaller in a cycle of perpetual reaction are the available options.

Secondly, it’s important to discuss ongoing solutions around the evergreen problems above. How does your HSA strategy address the January problem? Are your employees even aware of the potential issue when they make their election? How often have you benchmarked account fees? Or does your broker just install the baked-in administrator from the health plan every year without looking at costs or the services that could benefit your employees? Do you know that there are fee-free solutions you can offer? And lastly, are you communicating the value of free healthcare transparency tools like Healthcare Bluebook or GoodRx? Have you been advised of how they might help?

As the old saying goes, every journey begins with a single step. As the year begins, I hope the suggestions above are helpful as you strive to offer your organization the best possible solution for its valued employees and their families. If you’d like to know more, please don’t hesitate to reach out via LinkedIn or to me directly at mnelson@crestins.com.

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