8 Ways Plan Sponsors Can Boost The Success Of HSA Accounts
For plan sponsors looking to help employees save on current medical expenses, as well as grow funds for retirement healthcare costs, a health savings account (HSA) and an HSA-qualified health plan is a perfect choice. However, plan sponsors should be aware that the way they set up and communicate their plans could have a major impact on employee adoption rates. Here are 8 simple tips for developing an HSA-focused plan that gets employees excited about participating:
1. Offer HSA investment options, rather than just a cash/debit card option
A recent study of adults aged 50 or older with a household income of $150,000 or more found that 64% of participants are “terrified” of what healthcare costs may do to their retirement savings. For plan sponsors, the best way to rectify those fears is to give participants the option to invest HSA funds and let them grow for retirement medical expenses. And given that the average couple retiring in 2018 at age 65 will be liable for over $400,000 of non-Medicare-covered medical expenses, having a dedicated savings stream for healthcare costs is much needed. Employees should know that if they paid for that $400,000 of medical expenses with 401(k) funds, they could pay as much as $130,000 more in taxes. However, by investing HSA dollars, they can grow funds to pay for those costs tax-free.
2. Check with new hires about transferring previous HSAs
As employees are hired, plan sponsors should check whether they have existing HSAs they’d like to transfer over to the new company HSA. This has two benefits; first, it keeps employees from forgetting about prior HSAs by consolidating their funds into one account. And second, if their prior HSA provider didn’t allow HSA funds to be invested, transferring their balance into a new (hopefully investment-friendly) account allows them to start investing all their funds.
3. Cover the HSA maintenance fee for their employees
Often, HSA providers charge a maintenance fee to cover the cost of operating the account. By paying their employees’ administrative fee, plan sponsors can eliminate a significant hurdle to their employees’ participation.
4. Make contributions to their employees’ HSAs
In 2018, 32% of all HSA contributions were from an employer, according to Devenir, and the average employer contribution was $650. By contributing to their employees’ HSAs or matching employee contributions, plan sponsors can incentivize further HSA contributions from their employees. Rather than making one lump-sum contribution, contributing regularly to employees’ HSAs allows employees to see their accounts growing consistently. In addition, contributing quarterly, monthly, or per-pay-period keeps plan sponsors’ contributions from being spent all at once.
5. Educate employees about HSAs multiple times throughout the year
Too often, an annual open enrollment meeting is the only time employees hear about HSAs. Consider folding HSAs into ongoing employee conversations about retirement planning and wellness. A good place to start is holding small group meetings after open enrollment meetings where employees can discuss the benefits of HSAs and ask deeper questions.
6. Use multiple communication options to educate employees about HSAs
A PowerPoint presentation during open enrollment can be a good start for educating employees, but it doesn’t have to be the only step. Consider using HSA “how-to” guides, flyers, videos, webinars, and more to drive home the value of HSAs to employees. There are 4 different types of learning styles (visual learners, auditory learners, readers/writers, and kinesthetic learners); if your HSA education is tailored to all of these styles, you’ll have a better chance at making things stick.
7. Educate employees about how to allocate 401(k) and HSA contributions
Employees might not understand why they would want to contribute to an HSA if they’re already contributing to their 401(k). Plan sponsors can boost HSA participation by educating employees about HSAs’ unique triple tax benefit (contributions are tax-free or tax-deductible, earnings and interest grow tax-free, and qualified medical expenses are tax-free too). By investing their HSA funds and building medical nest eggs, employees can pay for qualified medical expenses in retirement tax-free and save their 401(k) funds for other retirement costs.
It might be easy to think that encouraging employee HSA contributions would decrease contributions to other savings accounts, but a recent Alight study suggests that isn’t the case. According to their study, employees who contributed to both an HSA and a 401(k) put a total of 11.8% of their pay into the accounts (2.9% into the HSA and 8.9% into the 401(k)). However, employees who just contributed to their 401(k) only put 6.8% of their pay into the account. Plan sponsors can encourage employee HSA contributions without worrying that they will negatively impact 401(k) contributions.
8. During annual enrollment (and any other educational opportunities), suggest an amount employees should contribute to their HSAs
If employees have the choice between a traditional health plan and an HSA-qualified plan (that likely has lower premiums), plan sponsors can suggest that employees put that difference in premiums into their HSA. Also, if employees previously contributed to an FSA, plan sponsors can suggest they add that past contribution amount to their HSA. Finally, since pre-tax employee HSA contributions via payroll deduction aren’t subject to FICA taxes, plan sponsors should open the conversation of diverting a portion of 401(k) contributions to HSAs to gain the additional tax savings. This is especially true if the plan sponsors are matching HSA contributions; employees should never be leaving free money on the table.
By following these tips, plan sponsors can have robust HSA accounts that employees see value in and are excited to join. If you’d like to learn more about how to educate your employees about HSAs, contact your Account Manager or call us at (888) 354-0697.