Many employers and employees saw Health Savings Accounts (HSA) as a way to help transition into high-deductible health plans (HDHP). The idea was that by withholding pre-tax dollars from their paychecks, employees could cover their deductibles and get a tax break at the same time.
As long as the amount of money contributed every year was more than they needed to cover medical expenses, their account would grow over time. Those accounts would eventually reach the point where employees could be sure they had enough money to cover major out-of-pocket medical expenses.
Unfortunately, HSAs have not helped as much as many thought they would. Some employees who have high-deductible health plans cannot afford to contribute money to an HSA account, so they are not able to get the intended benefits. Others are able to contribute funds, but not enough to cover all their out-of-pocket medical expenses so their HSAs do not accumulate money and do not grow over time.
There are other ways employers can help employees cover the costs of high-deductible health plans. That’s why employers should understand how HSAs work, where they fall short, and what else they can do to help their employees.
What Are Health Savings Accounts (HSA)?
HSAs are a type of savings account that lets people put aside pre-tax money to use during the year to pay for qualified medical expenses. Consumers with HSAs can lower their overall healthcare expenses by using untaxed income to pay for deductibles, copays, and other costs not covered by their health plan.
Not everyone qualifies to have an HSA. According to the federal Internal Revenue Service (IRS), only consumers who meet the following conditions can contribute to an account:
- They must have a high-deductible health plan.
- They can’t be covered by any other health plan except workers compensation, long-term care, vision, dental, or other specific plans.
- They cannot be enrolled in Medicare.
- No one else can claim them as a dependent on their tax return.
According to the IRS, high-deductible health plans have deductibles of $1,400 to $7,000 for one person and $2,800 to $14,000 for a family. High-deductible health plans have become more common in recent years because they lower premiums and help employers lower the cost of providing health insurance. However, employers can take steps to make HDHPs a good choice for their employees.
Annual contributions to an HSA are limited too. Employees can contribute a maximum of $3,600 for an individual and $7,200 for a family in 2021. It’s easy to see that HSAs will not cover the deductible for some employees even if they made the maximum contribution every year.
In fact, the Employee Benefits Research Institute (EBRI) says that 80-percent of employees in high-deductible health plans do not have enough money in their HSAs to cover a year of out-of-pocket medical expenses.
What It Means for Employees
One of the benefits of an HSA is that when an employee makes annual contributions, the amount in their account can grow over time. But when their annual out-of-pocket costs are more than they can contribute, they are not able to take advantage of their HSA.
The financial gap between health plan deductibles and the amount in an employee’s HSA could force them to choose between their physical or financial wellbeing. That’s a choice that could increase an employer’s overall cost for health insurance because working to ensure an employee’s physical wellbeing helps them avoid costly medical care.
In fact, 32 percent of American families have put off medical care because of the cost, according to a recent survey by Bankrate. Others may withdraw money from retirement accounts or use high-interest credit cards to pay for medical treatment. Any of those choices could create stress at home and work that impacts their job performance. Businesses can help employees avoid those extra pressures by providing benefits that support employees in all parts of their lives.
There Are Other Ways To Help
There are other ways employers can help when their employees can’t meet their deductibles. One way is through an employer-sponsored, interest-free payment plan, such as Paytient. Paytient can be used alongside HSAs and allow employees to pay for out-of-pocket expenses through payroll deductions. Allowing their HSA to grow over time for potential large claim risk in the future, saving for retirement, or keep more cash on hand in case of an emergency.
Paytient works alongside any health plan. When an employee uses a Paytient card to pay for their out-of-pocket medical expenses, Paytient pays the doctor, hospital, or pharmacy in full. Employees are then able to create a payment plan that fits their budget, through payroll deductions.
Health Savings Accounts can be good for employees covered by high-deductible health plans to save money for significant medical expenses. Employers must understand the limitations of HSAs, and why their employees need another option to pay their out-of-pocket medical expenses to get the care they need and be free from the financial stress that could affect their personal lives and job performance.