Does your self-funded plan offer dental and vision coverage? How about acupuncture, chiropractic care and fertility treatment? Many self-insured employers don’t cover them—but employees with health savings accounts (HSAs) may still be able to afford these and other medical costs not covered by their insurance.
HSAs were created nearly 20 years ago, as a way to help Americans with high-deductible health plans afford out-of-pocket medical costs. The popularity of HSAs has steadily grown ever since. There were over 31 million accounts in late June 2021 (up 6 percent from the previous year), according to research from Devenir. Its projections say that more than 36 million people will own HSAs by the end of 2023. Will the members covered by your self-funded plan be among them?
Benefits of HSAs for Employees
Employees have a lot of reasons to want HSAs. For one, the tax benefits can be significant. Contributions are made with pre-tax dollars, so putting money into your HSA can lower your taxable income for that year. The money held in an HSA earns tax-free interest. And any money you take out of your HSA is tax-free as long as it’s used for qualifying medical expenses, which is an extensive category encompassing a broad range of services. HSAs can be used to cover copays and deductibles as well as medical services and equipment. (You can even use your HSA to buy sunscreen!)
HSAs can be useful tools for long-term health care planning. These accounts are portable, meaning they aren’t tied directly to employment. Once you open an HSA, you can keep your account even if you change jobs or retire. Another HSA benefit is that money held in these accounts rolls over from year to year. Someone who contributes the IRS maximum to an HSA every year but rarely takes money out will have a substantial (and tax-advantaged) nest egg saved for healthcare expenses in retirement.
One of the most attractive features of HSAs for employees is the option for an employer match. Some employers will match HSA contributions up to a certain dollar amount, like they might match employees’ contributions to their 401(k)s. Getting “free money” to spend on healthcare expenses is a real perk for employees. Plus, many employees like that they can spend their HSAs on things that improve their quality of life, such as mental health care, smoking cessation products and even massages (when they’re deemed medically necessary by a doctor).
Benefits of HSAs for Employers with Self-Funded Plans
Self-insured employers are always looking for ways to control healthcare spending, and HSAs are one tool that can help accomplish this goal. People with high-deductible plans sometimes avoid seeking medical care because they can’t afford the out-of-pocket costs or because they think their symptoms are minor. Neglecting treatment now can lead to more serious medical conditions later on, creating high-cost or even catastrophic claims that self-insured employers then have to cover.
Say you have a covered member who notices some changes to their vision. Diagnostic testing at the eye doctor is going to cost $500 and your health plan doesn’t include vision coverage. If that member is struggling to pay their bills, they might not be willing to pull money out of the bank for this purpose. They also won’t find out if their vision changes are a warning sign of an impending stroke or other serious medical event. A month later, they might be in the hospital racking up hundreds of thousands of dollars in claims—or, if the member has at least $500 in an HSA, they can afford to go see the eye doctor when the symptoms first appear, while there’s still time to prevent an expensive medical crisis.
HSAs can also be a recruitment and retention tool for employers with self-funded plans, especially if you offer any contribution matching. A lot of current workers are rightfully concerned about how they’ll afford their future healthcare costs. As the rise in popularity of HSAs indicates, Americans are increasingly interested in saving for their own medical care instead of expecting their insurance to cover everything.
Including HSAs in Self-Funded Plans
Employers that choose self-funding can offer HSAs in conjunction with consumer-driven health plans (CDHPs). They’re high-deductible plans that are designed to help employers contain healthcare costs, while giving covered members more control over their own care. Members covered by CDHPs benefit from transparency around their medical costs, and these plans encourage members to be actively engaged in their healthcare decisions.
Self-insured employers have some options around how they incorporate CDHPs in their self-funded plans, since CDHPs can be designed in different ways. But don’t worry about any logistical or administrative challenges of including HSAs with your self-funded plan. Because employees own and control their own HSAs, employers don’t have to do much beyond helping employees establish new accounts (or, if the employer offers an HSA match, manage the accounting and reporting of those contributions). The third-party administrator who handles the administration of your self-funded plan can also assist employees with issues related to their HSAs.
I know that controlling healthcare costs without sacrificing plan quality is a top priority for self-insured employers. Stop Loss Insurance Brokers, Inc. is here to help employers navigate all their options around self-funding and stop loss. What questions do you have about HSAs, CDHPs, self-funded plans and/or stop loss? Contact me today!
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