Benefits October 5, 2018

Employees Struggle With Allocating Money to HSAs and Retirement Plans

Even financially adept employees have trouble deciding where to save and how to spend.

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Eighty-two percent of employees see medical costs as their biggest challenge now and in the future, according to the Willis Towers Watson 2018 Health Accounts Employee Attitudes Survey.

Yet only 25% rank contributing to a health savings account (HSA) as a top current financial priority, falling below saving for retirement in a 401(k), paying for essential day-to-day expenses and paying off debt. The survey found the majority of employees (69%) who didn’t enroll in an HSA said they chose not to because they didn’t see the benefit, understand HSAs or take the time to understand them.

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While HSAs can be a high-value option to help employees prepare for health care costs in retirement, most employees use them primarily as spending accounts for immediate health expenses, Willis Towers Watson found. Two-thirds of survey respondents (65%) use their HSA money for current health care needs, large and small, while 8% focus on saving their funds for the future. Because employees regularly use HSAs to pay for current health costs, less than half (45%) have more than $5,000 saved.

Finding the money to contribute

Roughly one-quarter of employees who didn’t enroll in an HSA say they don’t have enough money to contribute to one at this time, while nearly two-thirds of employees who did enroll (63%) say they put aside what they can afford each month. Savings to an HSA may be limited by an employee’s financial position or may be a result of prioritizing contributions to other employer-sponsored benefits. Willis Towers Watson suggests portals integrated with financial planning tools can help employees make strategic decisions about where to best save their money based on their unique financial situation.

Even financially adept employees have trouble deciding where to save and how to spend. For example, only 22% of employees in this group first maximize their 401(k) contributions up to their company’s match before contributing to their HSA—a common strategy recommended by financial experts. Further, only one in four employees contribute to their HSA before their 401(k) plan when they don’t have a matching employer contribution, also a recommended strategy.

In addition, those who opt for medical flexible spending accounts (FSAs) often leave money on the table or scramble to spend the funding before year-end. Although 69% of FSA enrollees reviewed their previous health care expenses to determine their contribution, many employees are still losing money when opting into FSAs. Forty-eight percent said they could have put aside more money; 36% often spend frantically at year-end to use all of the money in their account; and 32% find it hard to spend all of the money in their account by year-end.

Employees value help with HSA decisions

Nearly half (44%) of employees surveyed said they value quality customer service as the most important feature of an account provider, while online tools and mobile apps were ranked second (22%). Willis Towers Watson says these responses suggest employers have a great opportunity to engage employees and enable them to make good “save versus spend” decisions by providing online tools that offer personalization and decision support on the HSA account portal.

They can also help employees better manage HSAs by offering delivery platforms that are integrated with financial wellbeing programs. For example, 61% of employees surveyed look for online tools or mobile apps to help them manage their health savings investment.
Compliance October 5, 2018

HSA Conference 2018: Regulatory and Legislative Update

This year, Congress is actively taking up legislation that would expand the use and benefits of health savings accounts (HSAs).

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Providing background for the reason health savings accounts (HSAs) were created, Shad Fagerland, of counsel at Ivins, Phillips & Barker, in Washington, D.C., told attendees of the 2018 PLANSPONSOR HSA Conference in New York City that the accounts were meant to solve the problem of overinsurance.

“Too many routine medical procedures were covered by insurance,” he explained. “Consumers were insulated from the true cost of care, and overconsumption and inefficiency led health care costs to rise rapidly.”

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In 1996, legislators created the Archer Medical Savings Account, which Fagerland said were similar to HSAs but limited to small employers. HSAs as we know them today were created by legislation passed in 2003.

To be eligible for HSA ownership, an individual must be covered by a high-deductible health plan (HDHP) and must not have other disqualifying coverage. Distributions from HSAs are tax-free if used for qualified medical expenses (QMEs), but are taxable—including a 20% penalty—if used for something other than qualified medical expenses. The 20% penalty no longer applies after the HSA holder reaches age 65.

Fagerland said there are pivot points for potential legislative or regulatory changes for HSAs to be expanded and made more beneficial. What constitutes an HDHP and/or what constitutes disqualifying coverage can be changed to expand who can contribute to an HSA. The maximum contribution amount allowed for HSAs can be increased. Rollover provisions can be expanded. Fagerland said now rollovers are allowed from an individual retirement account (IRA) to an HSA, but only once per individual and only up to the maximum contribution limit. Finally, the definition of QMEs could be expanded, and the penalty for non-QME distributions could be reduced or eliminated.

According to Fagerland, last year, as Congress was trying to repeal the Affordable Care Act (ACA), many bills had HSA provisions addressing some of these pivot points, but these all failed.

This year, Congress is actively taking up HSA legislation. Fagerland said the bills are popular and mostly bipartisan.

Fagerland discussed H.R. 6199, the Restoring Access to Medication and Modernizing HSAs Act, which passed the House in July, but has not yet been taken up by the Senate. The bill allows for over-the-counter medications to be considered QMEs without prescriptions, provides for rollovers of flexible spending account (FSA) and health reimbursement account (HRA) balances into HSAs, allows HDHPs to cover up to $250 (self-only) and $500 (family) annually for non-preventive services that currently may not be covered pre-deductible, and modifies the treatment of direct primary care (DPC) service arrangements so that such arrangements are not treated as a health plan that would disqualify an individual from contributing to an HSA. This is not an exhaustive list of H.R. 6199’s provisions.

Also passed by the House in July was H.R. 6311, the Increasing Access to Lower Premium Plans and Expanding HSAs Act. According to Fagerland, changes in that bill include:

  • Maximum contributions of $6,550 for self-only and $13,100 for family. Fagerland said he doesn’t feel this will be passed or thinks it will have to be negotiated because Congressmen think HSAs are a bucket only for the rich;
  • Both spouses can make catch-up contributions to HSAs;
  • Individuals can carry forward FSA balances up to three times the annual limit; and
  • Medicare Part A is not disqualifying coverage.

Again, this is not an exhaustive list of H.R. 6311’s provisions.

Fagerland also said H.R. 6813, introduced in September, would treat qualified home care expenses as QMEs.

Regarding regulatory changes, Fagerland said there is not a lot out recently and not a lot on the horizon. However, he reminded conference attendees that a change in tax legislation earlier this year modified the way the IRS calculates cost-of-living adjustments (COLA) for HSA limits.

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