Data and Research August 1, 2018

Employees Overestimate Knowledge About HSAs

Bank of America Merrill Lynch’s 2018 Workplace Benefits Report also finds men and women show different levels of financial stress.

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According to Bank of America Merrill Lynch’s 2018 Workplace Benefits Report, health care costs are a huge blind spot for employees when it comes to increasing financial wellness.

The newly published report suggests that employees understand most of the inputs that directly affect their financial wellness, and yet the majority ignore one of the biggest factors when they are setting long-term goals and savings priorities—health care costs. In fact, just 7% of employees surveyed identified health care as “an important building block of financial wellness.”

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Researchers call this somewhat puzzling, as more than half of the work force reports having foregone health care-related spending for financial reasons. Notably, 32% of employees have skipped medical appointments for financial reasons, 21% have foregone medical tests, 14% have put off the purchase of medications, 10% have delayed hospital visits or stays and 7% have skipped out on health insurance premiums. Overall, 53% of employees say they have skipped or postponed at least one of these activities to save money.

The report suggests these figures are made more troubling by the fact that employees lack an understanding of one of the most powerful planning tools they can use to help them save for and manage health-related expenses—health savings accounts (HSAs). According to the survey, 76% of employees say they understand the salient features of HSAs, yet only 12% could correctly identify the common attributes of an HSA in a simple quiz.

“What is the implication? HSAs are a missed opportunity,” the report explains. “Education is key for employees to better manage health care expenses and fully utilize their health care benefits, including HSAs.”

The report goes on to cite some astronomical health care cost projections for healthy couples retiring today: $688,000 for women and $494,000 for men. These figures are based on data from the Centers for Disease Control and include the cost of long-term care.

Men and women show different levels of financial stress

In other ways beyond health care cost projections, the report suggests, women face a more challenging retirement planning picture than men, based on the twin facts of longer life expectancies and lower lifetime earnings expectations.

“While helping women improve their financial wellness, employers need to make a concerted effort to understand the unique challenges women face,” the report suggest. “For example, women are 14% more likely than men to feel stress from their current financial situation. At the same time, women are 13% less likely to be very optimistic about their financial outlook.”

According to the report, women on average have $119,000 in investable assets, compared with $196,000 for men. They also trail men when it comes to the amount contributed to a 401(k).

Along with their relative savings shortfall, women are more likely to fear all of the following financial wellness factors compared with men: running out of money in retirement; having to work longer than planned; becoming ill and not being able to work; being able to pay for children’s education; and needing to support family members financially. It should be noted that, while men are less likely to report that these factors cause stress, still more than half of men report all these factors stress them out regularly, except for “needing to support family members,” which is cited by 38% of men and 46% of women.

Related findings show that, across the sexes, younger people tend to struggle and worry more about financial stress.

“Employee needs are not all the same,” the report concludes. “The onus is on employers to make sure their financial wellness programs are designed to address a wide range of employee needs—not just planning for retirement.”

Opinions August 1, 2018

Maximizing HRA Engagement on the Path to Consumerism

Jen Irwin, senior vice president, Marketing & Strategy at Alegeus, offers suggestions for the optimal design of HRAs.
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Before we look at the role of health reimbursement arrangements (HRAs) in engagement and consumerism strategies, it’s worth taking a moment to remember why HRAs are such a powerful tool in the benefits toolbox.

The answer is simple: HRAs, which are employer-funded health plans that allow employees to receive tax-free medical reimbursements, are highly flexible, feature-rich and, when well–designed, can drive consumer engagement—all of which lead to savings for employers and their employees.

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Employers like HRAs because they help offset rising costs while retaining many of the existing features in their benefit program. Companies can use HRAs to do the following, and more:

  • Protect employees from high deductibles;
  • Enter, or transition toward, a self-insured plan;
  • Lower total health and medical benefit costs without sacrificing plan richness;
  • Separate pharmacy deductibles from the medical plan; and
  • Keep co-pays in their plan design.

 

Unfortunately, with this flexibility comes complexity. Constructing highly customized and feature-rich plans might seem beneficial from a business perspective, but can quickly become difficult and complicated for the account holder to manage.

Keep HRAs simple

Using straightforward HRA designs with first dollar coverage allows many companies to see double–digit cost savings in the accounts’ first year. At the same time, these employers enjoy high member satisfaction because their plans are easy to understand.

Could a company squeeze out some additional cost savings with a more complex plan? Perhaps. But even with effective communication strategies in place, many account holders will struggle to properly manage these more complex plans.

When account holders have trouble navigating their plan, reduced satisfaction and lower retention rates will inevitably follow.

Keep the account holder experience in mind

A huge dimension of good HRA plan design is account holder choice. HRAs are very much a part of the consumer-directed health care (CDH) movement, but often they are designed in a way that leaves the account holder with little insight into—or control over—how he spends his health care dollars.

For instance, oftentimes HRA plans are set up for automatic payment to the provider, which prevents the account holder from deciding how or when his medical expenses are paid. Clearly this approach is anti-consumerism, because it excludes the account holder from a major part of his health care journey.

So, what’s the solution?

HRA plans that include debit cards.

OK, OK. I’ll be the first to admit that debits cards aren’t always appropriate for HRAs. For a variety of reasons, even some simple HRA plans can render debit cards useless.

But when HRA debit cards are appropriate—and that’s more often than you might think—they give employers an easy and valuable mechanism to increase consumer engagement in their health care finances.

Here are five of the most common ways debit cards can be included in an HRA plan:

  • HRA pays first. In this scenario, the HRA covers 100% of the account holder’s eligible medical services, up to a specific dollar amount. This allows straightforward use of the debit card until the HRA funds run out. At this point, the account holder can pay the remaining deductible and/or co-insurance out of pocket.
  • Employee cost share. Custom debit card rules can be set to allow percentage-based authorization and/or a co-pay exclusion. Stack the card with a flexible savings account (FSA), and out-of-pocket expenses can be paid automatically with the lower-priority account.
  • Upfront deductible. Once an account holder meets his deductible, the debit card can be enabled, or mailed, for future eligible medical expenses. As with the cost-share card, you can stack the card with an FSA.
  • Pharmacy only. Cards can cover pharmacy expenses, with all other reimbursements paid to the provider by the account holder or the benefits administrator.
  • Wellness incentives. Pair your HRA with a wellness incentive program that can automatically deposit earnings into an existing benefit account or a completely separate prepaid account with the option to create rules for how earnings can be used.

Successfully cross the bridge to health care consumerism

Ultimately, many employers today use HRAs as a bridge into self-insured and consumer-directed plans.

This is a move that should be applauded. After all, when they’re done well, CDH plans inspire people to make more conscious health decisions, provide employers with a strong mechanism for supporting the health of their employees, and lead to reduced costs for everybody.

But all of these benefits are dependent on good plan design. That means plans that are simple, well–communicated, and designed to engage account holders at every stage of their health care journey.

 

Jen Irwin, senior vice president, Marketing & Strategy at Alegeus

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Strategic Insight or its affiliates.

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