FIRST DOLLAR's EXPERT GUIDE

Everything You Need to Know About HSA's in 2021

HOW WE GOT HERE

The Rising Cost of Care

For years we've heard stories or personally experienced how health care costs are disproportionately stacked against individuals but 2020 put this unfortunate reality front and center for millions of people. Story after story has come out about patients receiving astronomical healthcare bills after coming home from battling COVID-19. People collectively wondered if they would be next, even if they had "adequate" health insurance.

How can those tasked with trying to figure out a workable solution for their employees, partners, and clients ease anxieties? While there's no overnight solution, there are underutilized tools like Health Savings Accounts (HSAs) that can make a huge difference for individuals and businesses alike—and we predict we'll be seeing more of them in 2021. 

"With a relatively young, healthy workforce, benefits were often viewed as something you needed in case of an accident or when starting a family. With COVID, everyone became more interested in what their coverage did/didn’t cover. The pandemic has shifted the perception of benefits from “if I ever need this” to an “essential” piece of total compensation. Now people pay attention to the benefits discussion vs. thinking we are speaking to someone else."

— Marci Rogers, SVP, Human Resources at GSD&M

The Basics: What Exactly is an HSA?

Before we get too deep into this conversation, let's refresh what we know about the powerful tool that is an HSA.

Health Savings Accounts were introduced in 2003 when lower premium, high-deductible health plans (HDHP) rose in popularity. The tax-advantaged funds in an HSA can be set aside and used for qualified medical expenses, which helps combat the high out of pocket costs associated with HDHPs. Money goes in pre-tax, grows tax-free (with interest), and can be used on healthcare expenses tax-free. Since the introduction of the HSA, healthcare prices have continued to skyrocket, and more and more people are opting for HDHPs to cut monthly costs. 

The HSA stands out when compared to similar benefit accounts like Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs). Its funds roll over year-to-year, its annual contribution limits are higher, it's triple-tax advantaged, and it becomes a traditional retirement account when you turn 65. See the comparison between an HSA and its closest counterpart, the FSA.

Things to know
In 2021, HSA contributions limits rose to $3,600 for individuals and $7,200 for families. In 2004, the contribution limits were $2,600 for individuals and $5,150 for families. As premiums and deductibles climb, the power of an HSA becomes more and more important.
The numbers don't lie

HSA's Are on the Rise

According to Health System Tracker, per-enrollee spending by private insurance grew by 51.3% from 2008 - 2019. Private insurance tends to be on the more expensive side compared to public options like Medicare and Medicaid, which means as the private insurance sector grows, so does the amount of money both businesses are spending to keep their people insured.

In 2011, roughly 25% of adults were enrolled in HDHPs. By 2018, that number increased to over 40%. More and more folks are electing to save money monthly and build wealth in HSAs instead. Now, there are almost 30 million HSAs out there, boasting well over $60 billion in assets, with projections reaching over $80 billion this year. Safe to say, HSAs aren't slowing down anytime soon.

Pro-tip: HDHPs + HSAs save money for your business AND its employees. HDHPs lower the amount you're paying for plans, and HSAs decrease payroll taxes.


Graph is based on a 75ee company with 30 employees purchasing individual health insurance (deductible = $2,000) and 45 purchasing insurance for their families (deductible = $3,750). The employer contributes 10% of HDHP deductible (~$300) and employees contribute an average of 50% of their deductible (~$1,600). This example is based off of California’s ~9% income tax rate for business expenses.

Switching to an HDHP + HSA saves the business $139,831.21 per year on health insurance expenses, and lowers the cost per employee by almost $2,000 while providing them lower premiums and the flexibility of an HSA.

KEY TO SUCCESS

HSA's aren't just beneficial to your employees; they are a smart business move. Everyone wins when you offer an HDHP + HSA, as depicted by the above graph.

Okay, but how do i get people to use an HSA?

Tips for Improving HSA Engagement

Healthcareand how people afford itis top of mind for many Americans right now. Many employers fall short of explaining exactly how an HDHP + HSA can help their people save money on monthly premiums and save for their future. And we get it, this isn't the most exciting topic to discuss, and employees often feel under-prepared for these conversations. However, with the right education and HSA partner, people can feel empowered to learn, build, and prosper in a system that sometimes feels impossible to navigate.

"People don’t want to understand everything about the company’s benefit offerings, they want to know they are maximizing their options. Simplify the communication into discussions using very practical examples which relate to where they are in life stages. For example: showing what a maternity claim might look if you have a relatively young, female workforce. An example for empty-nesters would be speaking to 401(k) Catch Up contributions. Make it relatable to their experiences, keep it conversational, and the anxiety will quickly fade while raising their confidence to navigate."
— Marci Rogers, SVP, Human Resources at GSD&M

HSA-expert-recommended engagement tactics:

  • Commit to employer contributions. Getting your people excited and involved in their HSA is a whole lot easier when an employer guarantees contributions. Whether it's monthly, quarterly, or all at once, this is a quick way to inspire employees to build their HSA.
  • Incentivize contributions. Some employers report promising additional contributions for meeting specific health and wellness goals like getting an annual physical. Employers could also match monthly contributions if an employee contributes a certain amount every month. To ensure your incentivization does not trigger ERISA, you must offer the same perk to every employee.
  • Listen to your people. Think about how and why your business chooses insurance the way it does, and consider surveying your people to understand their different needs, wants, fears, and goals regarding healthcare. Then, you can choose plans that will serve them.
  • Provide proper education. Or better yet, pick an HSA administrator that does it for you. There's nothing more empowering than receiving proper HSA education. If someone feels like they fully understand a tool or have the resources, they will become more confident using it.
  • Promote retirement planning. Your employees can have a 401(k) and an HSA at the same time! Help them plan using an HSA, which transitions into traditional IRA at age 65--which is also the point at which most Americans will spend the most on healthcare.

"We often recommend that clients contribute to the HSA plans that are available for their employees.

These contributions can increase participation for those where High Deductible Plans make the most sense.

It also can have huge long term advantages for employees and with the right understanding of how these plans work it can be a big boost to employee cultures."

Michael Roloson
Director, PEO Focus

When planned correctly, combining the HSA with a 401(k) for retirement looks really, really good!

Times are a-changin'!

Stay in-Tune With Policy Updates

HSAs saw some significant updates in 2020 due to COVID-19 relief. As a part of the CARES Act that passed in March of last year:

  • Menstrual products are now considered HSA-eligible. 
  • Over-the-counter meds can be purchased with HSA dollars.
  • Telehealth services can be covered by insurance before the deductible is met.

Because more and more policy-makers are focusing on healthcare and how they can take monetary burdens off their constituents, the HSA is at the forefront of many conversations. There's a proposed bill out now that expands HSA eligibility to everyone, regardless of what type of health plan they're on. 

The second COVID relief package expands on other accounts like the FSA, which foreshadows what could be on the horizon for HSAs this year.

It's 2021!

Lean Into Tech

Listen. We’re getting real here. It’s 2021. If you’re still relying on mountains of paperwork and endless signatures to get people signed up, you’ve already lost them.

We fully understand that there will likely always be some sort of formal paperwork in dealing with something this important, but for the sake of your business and its employees, cut out as much as you can. This could mean reconsidering incumbents and how they are working for youare they really working for you? What technology is out there to make everyone’s lives easier?

  • Automation. From payroll integration to auto-filling forms, proper automation technology gives everyone some time back.
  • Simple product. If your people can’t use the product on their computers or their phones, utilization will tank. Ensure simplicity and ease of use in the tech behind your HSA administrator.
  • Customer service. What’s worse than having to send a dozen emails or playing phone tag with an agent? Not much. Your HSA administrator should be easily accessible through quick chats and calls.
  • Digital education. We can’t say enough about the importance of education. Find a ready and willing partner to provide quality, in-depth, and digital education to employees. 

The right technology is out there. And when it works, everyone gets time back and feels empowered to build health and wealth with their HSAs. Your people deserve the best for their lives now and for the future because they’re in charge of this account.

Choose the best for your people

Why This Matters, Now More Than Ever

From a business perspective, expanding benefits to include HDHPs + HSAs does more than save your business money. It will also make your employees’ lives easier--leading to better talent retention rates.

The reality is that healthcare will get more expensive, and more people will consider opting out of insurance entirelywhich is the last thing anyone wants. With a tool like an HSA, we can empower people to put their health first and plan for the future no matter what stage of life they’re in. Pair that with a ready and willing HSA administrator and the HR leader’s life will improve on so many levels. There’s no better time than now to invest in an HSA that puts people first.

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