As more American employers turn to high-deductible health plans to reign in escalating health care expenses, many are offering health savings accounts (HSAs) in an effort to encourage workers to make cost-conscious health care decisions. But according to a recent survey by financial services firm Fidelity Investments, two-thirds (65 percent) of Americans who make household health-benefit decisions simply do not understand how an HSA works.
Growth in HSA-eligible high-deductible health plans has continued at a brisk pace in recent years. However, many employees may be missing out on the short- and long-term savings opportunities of HSAs because they don’t know enough about them. With the annual open-enrollment period approaching in the early fall, “the time to educate employees who are offered HSAs on their features is now, prior to them making a yearlong commitment that precludes them from taking advantage of the accounts’ many benefits,” Fidelity Investments Vice President William Applegate, in a media release.
Confusion between HSAs and FSAs
Confusion between an HSA and a flexible spending account (FSA) remains high. A full 73 percent of respondents said an HSA is pretty much the same thing as a health FSA or were unsure, and the “use it or lose it” provision of FSAs was one of the most commonly misunderstood differences between the account types.
Unlike an FSA, HSA balances carry over from year to year, allowing account holders to accumulate their savings for qualified health care needs. Yet, 69 percent of respondents incorrectly believed they would lose unspent money in an HSA at the end of the year (see the box below for more about these accounts).
HSAs vs. FSAs: Key Differences
HSAs, which help individuals save for future qualified medical expenses, must be linked to high-deductible health insurance plans (in 2013, deductible minimums were $2,250 for individuals and $2,500 for families). HSA accounts are employee-owned, and contributions can be made by the employer, the worker or both, using pretax dollars. Funds employees withdraw to pay for health care services are not taxed. Amounts saved in an HSA accumulate over time (there is no use-it-or-lose-it rule). The Society for Human Resource Management’s 2013 Employee Benefits survey of SHRM members showed that 42 percent of organizations provided HSAs as a health care benefit in 2013, up from 32 percent in 2009. Twenty-six percent of companies contributed funds to their employees’ HSAs.
HSAs differ from health reimbursement arrangements (HRAs), which employers own and fund. Unlike money in HSAs, HRA funds revert to the organization when a worker leaves.
FSAs, like HSAs, also allow employees to deduct pretax dollars from their paychecks to pay for eligible out-of-pocket health care expenses. FSAs need not be coupled with high-deductible plans, however, and workers must spend annual contributions by the end of the year (extended by a 2½-month grace period if the plan allows) or they forfeit the remaining funds. According to SHRM’s survey, 70 percent of organizations offered health FSAs in 2013.
Finances Key Driver for HSA Participants
Financial considerations were the top factors in the decision of the Fidelity survey respondents who chose their employer’s HSA-eligible health plan and opened an HSA. When asked the reasons behind their choice, 48 percent said HSAs allow account holders to carry over remaining funds year to year, 45 percent cited lower premiums, 38 percent mentioned the tax savings, and 25 percent said an HSA is an attractive savings vehicle for their anticipated health care expenses in retirement.
Employer Seen as Most Influential
Nearly two-thirds (65 percent) of respondents who opened an HSA via their company’s health plan said they received the right amount of employer communication to help them make the decision. Of these respondents, the most influential source that helped guide their decision was their employer or spouse’s employer.
Contrasting these findings, of those respondents who were offered an HSA-linked coverage option but declined it, only 9 percent said their employer influenced that decision, and 55 percent spent less than a half-hour researching their health care benefit choices, a decision that may have a long-term financial impact.
“It’s clear more can be done to educate employees on the benefits of HSAs, from saving for current and long-term qualified medical expenses to factoring health care costs into retirement planning,” said Applegate.
His advice: “Employers that offer HSAs should deliver employees easy-to-understand communications and intuitive decision-support tools, along with onsite and online workshops that clearly explain how HSAs work and how employees can benefit.”
Stephen Miller, CEBS, is an online editor/manager for SHRM.