Administration May 12, 2017

More Participants Contributing to Both 401(k) and HSA

In light of surging health care costs, an HSA can serve as an important component to a holistic retirement-planning strategy.
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Despite the worry that participants in high deductible health plans (HDHP) with health savings accounts (HSAs) cannot afford to contribute to both the HSA and their 401(k) plans, research by Fidelity Investments finds the opposite. Its clients’ participants who contribute to both vehicles on average defer higher rates (10.6% in 2016) to their 401(k)s, than those saving in only their 401(k)s (8.2% in 2016). Moreover, the firm finds that the overall number of employees contributing to both a 401(k) and an HSA increased by 21%.

“We continue to see people participate at higher levels every year, and we continue to see the deferral rates increase,” explains Will Applegate, vice president, Fidelity Investments.

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A recent study by United Benefit Advisors (UBA) reflects these findings. According to the firm’s survey, HSA enrollment is at 17%, marking a 25.9% increase from 2015, and nearly a 140% increase from five years ago. Moreover, a study by Devenir http://www.plansponsor.com/utilizing-hsas-to-fund-a-healthy-retirement/ projects that by the end of 2018, the HSA market will exceed $50 billion in assets among more than 27 million accounts. 

But despite these findings, there is still much in the HSA space that can be remedied. Among participants, there are still several misconceptions surrounding HSAs. In fact, Fidelity finds that only three out of ten employees surveyed know that HSA money rolls over year after year. For many participants, misconceptions like this present road blocks preventing them from preparing for what is likely to be the most burdensome expense in retirement: health care.

According to Fidelity’s research, http://www.plansponsor.com/retiree-health-care-cost-estimates-reach-record-level/  a 65-year-old couple that retired in 2016 would need an estimated $260,000 to cover medical expenses throughout retirement. Couple that with rising health care costs and the uncertainty of the country’s health insurance system, and today’s employee is looking at a bitter pill to swallow.

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“A lot for our clients are continuing to raise awareness around the costs of health care in retirement, and the fact that the HSA can be a great vehicle to begin addressing that need,” explains Applegate. 

An effective communication strategy can come a long way. Applegate suggests a heavily targeted approach. New employees or those not enrolled yet can be presented with just the basics benefits of HSAs: triple-tax advantages, https://si-interactive.s3.amazonaws.com/prod/plansponsor-com/wp-content/uploads/2017/05/25040257/MagazineArticle.aspx_.jpg?id=6442517510 the ability to use the money now or in retirement, and the chance to use premium savings already garnered from an HDHP.

“For those people engaged but not really contributing, we’ll encourage them to consider contributing up to the plan deductible, or up to the out-of-pocket maximum, and ultimately up to the IRS limit,” says Applegate.

Those saving at the age of 65 or older can also use HSA money to pay for non-medical expenses if they pay the deferral income tax.

But it’s important to place emphasis on participants more subject to inertia.

“Those that are taking the leap and taking advantage of the HSA option tend to be overall better at savings to begin with,” says Applegate.

Another challenge, however, is getting employees to enroll in an HSA-eligible health plan. “We’ve even seen employers do things like not referring to the insurance component as the high deductible plan because that can scare people, but rather as the health savings plan.” He adds that even removing all other options and only offering the HSA-eligible component could be an effective option.

But ultimately, the strategy has to boil down to the easiest and simplest way to present the potential benefits of what an HSA is, and explain what it is not.

“It’s critical to dispel those myths behind HSAs,” says Applegate. “HSA money does roll over and can be used in retirement, which many people still don’t know. And it can be invested, and it is one of the most tax efficient vehicles out there.”

Benefits May 12, 2017

Medical Cost Trends Continue to Outpace Inflation and Wages

Rising pharmacy prices and utilization, especially for specialty drugs, are a key driver of health care cost trends, a survey by Willis Towers Watson found.
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While medical cost increases have slowed in recent years, insurers in the U.S. still report trends between 7% and 9% per year, from 2015 to 2017, according to Willis Towers Watson’s 2017 Global Medical Trends Survey Report.

With costs per employee (for employer and employee) approaching $13,000 per year—12% of typical employee pay—Willis Towers Watson suggests little has been done to address growing affordability concerns for employees, especially in the wake of a prolonged period of relatively stagnant wage growth. In addition, cost trends are still much higher than general medical inflation rates and have outpaced wages for much of the last few decades.

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Rising pharmacy prices and utilization, especially for specialty drugs, are a key driver of health care cost trends, the survey found. A dominant market trend, which has been ongoing for the last decade, has been a move toward greater point-of-care cost designs through higher deductibles. In addition, many new developments focus on achieving higher-quality care at lower costs through alternative payment and delivery models (e.g., centers of excellence and other value-based designs, expansion of telemedicine services, and increased use of data to drive care management decisions), which are dramatically changing the U.S. health care delivery system.

Employers expect their plan trend to increase 5% for both 2016 and 2017 after plan design changes, higher than the 4% rise in 2015 and much higher than the general inflation trend (about 1.5% to 2.0%), the survey report notes. As in recent years, employers continue to make changes to their plan designs to keep employee cost increases to a minimum. But in this prolonged period of relatively stagnant wage growth, they are increasingly concerned about affordability. By 2018, more than half will make changes specifically designed to lower premium contributions for low-wage workers and out-of-pocket costs at the point of service. Likewise, most offer account-based health plans with tax-advantaged health savings accounts, and many seed these accounts to help cover increased out-of-pocket costs.

At the same time, a majority of employers focus their most aggressive cost cutting on minimizing the most expensive and commonly overused procedures, adopting cost-effective options to manage pharmacy spend (especially for high-cost specialty drugs) and redefining coverage for spouses who can obtain coverage from their own employers.

In addition, more employers are beginning to leverage new sources of higher-quality care at lower cost, dramatically changing the U.S. health care delivery system, according to the report. These include accountable care organizations, expanded telemedicine services and, increasingly, use of data to drive care management decisions.

The survey was conducted between October and November 2016, and reflects responses from 213 leading medical insurers operating in 79 countries. The full report may be downloaded from here.

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