Health Savings Accounts: Increasing Employee Adoption and Utilization
Over the past several years, the health care industry has emphasized how consumer-driven health plans, through a vehicle such as a health savings account (HSA), can help reduce health care costs by empowering consumers to shop for their health care. While the percentage of employers offering HSA plans has increased from 2 percent to 18 percent,1 and enrollment in HSA plans has increased from 1 million to 13.5 million2 participants since 2005, employers should give careful consideration to the ongoing support of HSA plans to ensure employee utilization. To ensure not only successful employee adoption, but also utilization of an HSA plan, employers should consider plan design and employee communication and education.
How an employer designs an HSA plan can significantly impact employee adoption of the plan. One of the biggest factors contributing to employees adopting an HSA plan is whether or not the employer makes HSA contributions on behalf of its workforce. By providing matching contributions, employers send the message that they are committed to their employees’ long-term health and wellness. Studies have shown that employer groups that provide matching contributions see higher HSA plan enrollment, employee contributions and account balances relative to those employer groups that do not provide matching contributions.
Another key plan design feature to drive employee adoption and utilization of HSA plans is first-dollar coverage for preventive care and services. With a large portion of health care costs attributed to preventable illnesses, employers are increasingly attempting to bend the cost curve by incorporating first-dollar coverage for procedures such as routine physicals and immunizations. While many employers already provide first-dollar coverage for preventive care and services, the Patient Protection and Affordable Care Act of 2010 will require it for all health plans as of 2014.
Employee Communication and Education
Communication is critical, especially when an HSA plan is first introduced to an employee population, to ensure not only successful adoption, but also utilization. When crafting the employee communications strategy around an HSA plan, employers should consider the following:
- Explanation of employer’s vision and reason for adoption of an HSA plan
- Introductory material explaining the basics of an HSA plan: account creation/transfer, tax implications, company match (if applicable)
- Employee decision support tools, such as cost and savings calculators
- Illustrations to highlight the differences between flexible spending accounts (FSAs) and HSAs, especially in the treatment of rolling over account balances
- Integration of a wellness plan with financial incentives
HSAs an yield significant savings to employees and employers alike
HSAs can yield significant savings to employees and employers alike. However, employers should not only carefully weigh how an HSA plan is designed, but also how to design a tailored communication and education strategy in order to maximize employee adoption and utilization.
If an employee joins a plan in the middle of the year, is he or she entitled to defer the full annual HSA maximum over the remaining months of the year?
The full-contribution rule allows a full year’s worth of HSA contributions for someone who is HSA-eligible for only a portion of the year. Under the full-contribution rule, an individual who becomes covered under a high-deductible health plan (HDHP) in a month other than January (i.e., a midyear HDHP enrollee) and who is an HSA-eligible individual on Dec. 1 of that year (i.e., has HDHP coverage and no disqualifying coverage on Dec. 1) is treated as having been an eligible individual during every month of the year and will be allowed to make contributions (or to have them made on his or her behalf) for those months during that year before the individual actually enrolled in an HDHP. Although the full-contribution rule provides that individuals who are HSA-eligible on Dec. 1 of the year are treated as eligible individuals on Jan. 1 for purposes of determining the contribution amount for the year, the full-contribution rule has no effect upon an HSA’s establishment date. The full-contribution rule applies without regard to whether the individual was an eligible individual for the entire year, had HDHP coverage for the entire year or had disqualifying non-HDHP coverage for part of the year. An individual who makes contributions in reliance upon the full-contribution rule must remain HSA-eligible during a 13-month testing period that begins Dec. 1 to avoid adverse tax consequences. Specifically, the additional contributions that were made under the full-contribution rule will be includible in the individual’s gross income for the taxable year in which the individual ceased to be HSA-eligible, and a 10 percent additional tax will also apply to the includible amount.
The full-contribution rule can increase, but not decrease, the amount that an individual would otherwise be able to contribute under the general monthly contribution rule. An individual to whom the full-contribution rule applies (i.e., an individual who is HSA-eligible on Dec. 1 of the taxable year) would be able to contribute to his or her HSA for that year the greater of 1) the amount determined under the general monthly contribution rule or 2) the amount determined under the full-contribution rule based upon his or her HDHP coverage (i.e., self-only or family) on Dec. 1 of that year. Thus, if an individual is treated under the full-contribution rule as an HSA-eligible individual for the entire taxable year, but changes his or her HDHP coverage during that year (i.e., from self-only HDHP coverage to family HDHP coverage, or vice versa), then he or she may contribute up to the greater of 1) the maximum amount that may be contributed for the taxable year, based upon his or her actual HDHP coverage (i.e., self-only or family HDHP coverage) for each month of the year or 2) the full HSA contribution limit for the taxable year based on the type of HDHP coverage that he or she had on Dec. 1 of that year (e.g., $3,100 if he or she had self-only HDHP coverage on Dec. 1, 2012, and $6,250 if he or she had family HDHP coverage on Dec. 1, 2012; for 2013 these limits will increase to $3,250 for self-only coverage and $6,450 for family coverage). The full-contribution rule does not apply to an individual who is not HSA-eligible on Dec. 1 of the taxable year.
1 “Health Savings Accounts and Account-Based Health Plans: Research Highlights.” November 2011. Figure 2, America’s Health Insurance Plans (AHIP). www.ahip.org.
2 “January 2012 Census Shows 13.5 Million People Covered by Health Savings Account/High-Deductible Health Plans (HAS/HSHPs).” May 2012. Figure 1. America’s Health Insurance Plans (AHIP). www.ahip.org.
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