Healthcare Cost & Quality
| Mar 17 2022

How to Maximize HDHPs and HSAs to Save Costs, Promote Health and Retain Talent

John Coleman
Principal, Mercer
Dorian Z. Smith
Partner, Mercer’s Law & Policy Group
Rebecca Gobbo
Principal, Mercer

Another approach to address affordability is for an employer to deposit more or all of its HSA contributions at the start of the plan year. Only 37% of employers currently provide all of their HSA contributions at the start of the plan year, which amplifies the value of the plan and enhances employee satisfaction. Providing access to more/all HSA contributions upfront helps blunt the cost impact to employees who have medical or prescription drug expenses at the beginning of the plan year.

One drawback to providing most/all employer HSA contributions at the beginning of the plan year rather than on a periodic basis (e.g., per pay period, monthly, quarterly) is that individuals have a non-forfeitable interest in their HSAs. This means an employer generally can’t recover any contributions from employees who terminate employment during the year. Upfront funding also could raise employer cash-flow issues.

Evaluate maintenance medications and supplies

Under the IRS’s HDHP/HSA rules, drugs and medications can qualify as pre-deductible preventive care for someone at risk for developing a disease that’s not yet clinically apparent (i.e., is asymptomatic) or is needed to prevent the recurrence of a disease from which the patient has recovered. For example, HDHPs can waive the deductible and cover the costs of certain maintenance medications and other supplies to manage chronic conditions without jeopardizing a participant’s HSA eligibility.

The major pharmacy benefit managers (PBMs) maintain lists of HDHP-eligible preventive medications and supplies, such as statins for individuals with health disease and/or diabetes, blood pressure monitors for individuals with hypertension or diabetes testing supplies. Plan sponsors can ensure that members are taking their maintenance medications at a reduced cost by either waiving the deductible or offering these HSA-compatible preventive care medications and supplies at no cost to plan members. The employer cost to add these benefits generally is low, but they are highly valued by employees and can increase medication adherence, which may help lower future medical claims. This preventive coverage also increases affordability for low-wage employees.

Consider Digital Health Solutions

Many digital health providers have developed technologies that help manage certain diseases or reduce the likelihood of surgery, which may lead to employer savings down the road. For instance, a digital diabetes program that provides glucometers and test strips is deductible-free preventive care for HDHP/HSA purposes. So pairing digital health solutions with HSA-qualifying HDHPs reduces financial barriers to accessing care.

Address employee concerns about HDHPs

We hear from many employees during open enrollment meetings that they understand the value of an HSA but are concerned what would happen if they had an unexpected accident or illness. To address this concern, re-imagining the HDHP’s design might make sense.

One way would be to offer fixed copays (after the deductible is met) for HDHP participants who use high-quality providers. This could help steer employees to high-quality providers since copays are familiar and easy for employees to understand. Adding copays may also alleviate affordability concerns about coinsurance and its financial impact.

Another approach would be to offer an employer-paid basic accident and/or specified disease or illness insurance for enrolling in the HDHP. These coverages are HSA-compatible and generally cost $4–$12 per month for each enrolled employee.

Coordinate 401(k)s and HSAs

Consider implementing a design that would allow employees to contribute to their HSAs and still receive their employer’s matching contribution in the 401(k) plan — with the match determined by the aggregate amount of the employee’s 401(k) and pretax HSA contributions. Employers have traditionally kept these benefits in separate buckets, but coordinating the two mean employees don’t have to choose between contributing to an HSA or to the 401(k) plan to receive the employer’s 401(k) match.

This strategy enhances the impact of the employer-provided retirement benefits. In addition, employees can use the HSA as a retirement savings vehicle, with the security of having the money available for current medical emergencies.

Over the last few years, the percentage of employers offering health savings account (HSA)-qualifying high-deductible health plans (HDHPs) on a full replacement basis has declined but on the flipside, the percentage of employees enrolled in HSA-qualifying HDHPs has continued to rise. Our 2021 National Survey of Employer-Sponsored Health Plans found 41% of employees with large national employers (500+ employees) enrolled in HSA-qualifying HDHPs. Implemented properly and thoughtfully, HDHPs along with employer-funded HSAs are a powerful tool to retain talent, increase savings for both employers and employees, and offer an affordable coverage option to employees.

 

 

Many in the benefits world are aware of the triple tax advantage offered by HSAs (i.e., tax-free/deductible contributions, tax-free earnings (investment, interest) on accumulated funds, and tax-free distributions for qualified medical expenses). However, the strategic value of HDHPs/HSAs does not end with tax savings. An employer can create an HDHP/HSA to be a rich (or lean) option through a variety of levers that can increase employee engagement and satisfaction.

Revisit employer HSA contributions

In our 2021 survey, the median employer HSA contribution was $500 for employee-only and $1,000 for family coverage among national employers with 500+ employees. This means median employer HSA contributions have remained the same since our 2010 survey, despite HDHP deductible increases of 23% for employee-only and 33% family coverage over the same period (see tables below). Adding the impact of unchanged employer HSA contribution levels, the net deductible increase for employees is 35% for employee-only and 50% for family coverage since 2010.

In an inflationary environment, now is the time for employers to revisit the possibility of increasing their HSA contribution levels. If budgeting for an increase in employer HSA contributions for all employees is cost-prohibitive, evaluate providing additional HSA contributions for lower-paid employees (e.g., salary-banded HSA contributions).

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