As consumer acceptance of Health Savings Accounts (HSAs) grows, many employers are beginning to understand the long-term value of these tax-favored accounts. HSAs are not just tax-advantaged medical savings vehicles for individuals enrolled in high-deductible health plans (HDHPs), but also a way to mitigate the Affordable Care Act’s (ACA’s) 2020 Cadillac Tax.
But, leveraging HSAs can also serve as an essential component of a three-to-five-year strategic benefits planning process. The HSA offers employers greater flexibility to engage employees in creating meaningful accountability when it comes to healthcare spending.
“When executed thoughtfully, we can advance a fundamental shift in the way employees see their benefits,” says Joe Torella, East Region President, Employee Benefits Division, HUB International. “An employer’s goal must center on changing the buying behavior and personal health choices of their employees. With its great tax features and flexibility, the HSA is ideally suited to help recalibrate the way people think about benefits.”
The Three-to-Five-Year Plan
Poorly thought-out and executed deployment of new health benefits packages can lead to confusion, frustration and lack of participation among employees. To prevent this, and instead foster positive feelings and engagement among employees, HUB International recommends employers take a long-term, strategic approach. We find that a more gentle evolution that ramps up participation over three to five years—with incremental increases in employee accountability is more likely to take root and deliver results.
“Our strategy centers on helping clients move their employees to a more accountable plan, like an HSA—as one method of aligning goals and objectives with employer funding. From there, we integrate wellness while building a suite of voluntary benefits around it,” said Torella. “This approach optimizes cash efficiency for employer and employee, and simultaneously allows employees to create funding pools due in part to their healthier behaviors; thus affording them greater overall financial freedom. Participants respond to the opportunity to generate real savings instead of just absorbing more of the risk burden.”
Easing employees into an approach that focuses on wellness can further smooth the path for change, says Torella. For example, in year one, employers can start by offering an HSA with a small amount of ‘seed’ money. Effectively highlighting the tax benefits of using such funds to pay for healthcare costs is a key step to winning over participants unfamiliar with the HSA concept.
By introducing wellness components into the program in year two and beyond (and financially incentivizing employees to participate), an employer can use the HSA as a vehicle for shifting from passive participation to active employee engagement in the benefits program and its associated costs.
“Furthermore, the HSA can operate as a reward system based on improved health outcomes,” said Torella. “Later, as employee decisions are better aligned with cost, through the effective management of an HSA strategy, the value of wellness through ‘healthier’ decision making can be more accurately assessed.”
Now, Add Voluntary and Executive Benefits
At the same time that employees are thinking more wisely about their purchase of healthcare services – and the related funding – employers should widen the options for purchasing worksite/voluntary and executive benefits that are critical for employees and their families.
“When you move people to higher-deductible plans, you don’t want employees to un-duly feel the added financial pressure of the high deductible,” said Torella. “Instead, you want to redesign your benefits offerings with smart planning and thoughtfulness by offering a suite of voluntary benefits like critical illness and accident coverage, creating a full package that is extremely effective.”
Of course, plans vary widely depending on the size and type of employer and employee base. Plan sponsors should carefully consider the financial risks of all employees from those newly hired to top-ranking executives. Take a top-tier law firm, for example: The executive/partner making $750,000 annually whose income replacement needs will exceed the policy limits offered through traditional group policies might want disability insurance, while the entry-level employee with a young family at the same firm making $40,000 annually may opt for accident coverage because of frequent Emergency Room visits. Then, there’s the average ‘middle-aged’ employee who might be more worried about the sudden onset of a major health risk and would likely be more interested in critical illness protection. An employer must be ready to offer a mix of voluntary and executive benefits that fit a broad spectrum of needs.
Shifting Expectations Drives Change
A dramatic shift is occurring across younger generations of U.S. workers. Unlike their predecessors, Generations X, Y and Millennials don’t have expectations of unlimited, life-long benefits. In recent years especially, such workers have been conditioned to accept greater responsibility for their health care spending choices, and have often become more amenable to the value-based approaches that ‘accountable’ plans encourage.
Although this generational difference in perception has already helped today’s workforce become more active participants in their healthcare decisions and often more comfortably suited to adapting to HSAs and HDHPs, educating employees about new benefits models will still take time.
“Employers can’t simply spring a brand-new benefits approach on employees and expect immediate buy-in—it has to be staged implementation supported by strong educational and communications components. And, that’s where the three to five year strategic planning process proves itself invaluable,” Torella said. “Over and over again we find that when given the options, employees make the decisions that are best for them and their life situation, which are typically less expensive than what the employer would have purchased for them.”
As employees become accustomed to assuming greater responsibility for their healthcare purchasing decisions, and more comfortable with choosing cost-effective options, the next level of employee benefits accountability is a Private Exchange. This concept offers additional flexibility and financial freedom to employees. In the Private Exchange model, employees spend allocated healthcare dollars as they see fit, within a wide range of offerings presented through a personalized online portal. The three-to-five-year strategic benefit planning process noted above will set the groundwork for consideration and implementation of a successful Private Exchange.