Debunking The Great HSA/FSA Benefits Debate

If health savings accounts were people, they would be old enough to drive a car. HSAs have grown in popularity and usage since they were created in 2003, and they became even more popular following the passage of the Affordable Care Act in 2010.

At the same time, health care costs have been on the rise and continue to shift to consumers, especially as an increasing number of employers are offering high-deductible health plans. In fact, more than 137 million Americans reported medical financial hardship in the past year, according to a Journal of General Internal Medicine study. Meanwhile, Milliman reported an average family had more than $4,500 in annual out-of-pocket medical costs, underscoring the need for solutions that support holistic financial wellness.

As part of workplace benefits programs, HSAs (and their cousins, flexible spending accounts) can play a valuable role in putting people more in the driver’s seat of their overall financial wellness. HSAs can complement retirement savings plans and help employees plan, invest and protect for today and the future. They can also provide insurance and benefits brokers more reasons to touch base with clients, which can in turn increase growth opportunities across the benefits spectrum. The challenge now is to ensure those who have HSAs, FSAs and related accounts — and even more so for those who don’t — understand how they work, how they differ and how they can help with eligible expenses today and in retirement.

Start Client Conversations With The Basics

Although it’s easy to slip into industry jargon when having a conversation about benefits solutions, it’s common for people in the room to unknowingly have different interpretations of what the terms and products mean. When discussing HSAs and FSAs with clients, it helps to get back to basics.

From the outset, it’s important to ensure everyone has the same understanding of the products, how they work with various health insurance plans and what they cover, and what the advantages and disadvantages of each are for employers and the various needs of their employee population. Clearly defining the industry terms can also help align thinking and enable more productive conversations and, ultimately, stronger benefits programs. An easy way to help your clients remember how HSAs and FSAs work at the very high level is to think of them this way: flexible spending for today; health savings for tomorrow.

When speaking about HSAs, make sure everyone at the table knows that HSAs can be offered only in conjunction with HSA-eligible high-deductible health plans. Define the “triple-tax advantages” — they can cover qualified health care costs tax-free with money that is contributed and withdrawn tax-free. And remind them of the fourth and often overlooked tax advantage: HSA contributions via payroll are not subject to FICA tax — a benefit to both the employee and employer.

In addition, HSAs can have investment options — much like the investment options employers and employees are accustomed to managing in their retirement savings plans. Finally, HSAs are portable, meaning they’re owned by the employee, so their balance can be rolled over year over year and even used as another tax-advantaged means to cover qualified medical expenses in retirement.

Depending on the demographics of a client’s employee population, your employer client might also want to consider other spending accounts, such as health FSAs or dependent-care FSAs. But unlike HSAs, the primary difference with FSAs is that these spending accounts are not portable, and they’re “use-it-or-lose-it” in any given benefits year. In addition, these accounts do not include an investment option available with many HSAs. Finally, health FSAs can be used with any health care plan, but they can’t be used if the employee has an HSA. To solve for that, the employer can offer a limited-purpose FSA that can be used in conjunction with an HSA to help cover immediate qualified vision and dental costs.

Create A Benefits Offering Strategy

It’s easy to add products to a benefits platform, but employers might not always see the greatest return on their time and resource investment in the benefits. The Employee Benefits Research Institute reported only 18% of employees say their employer or benefits provider offers education on how HSAs work, 11% say they’re provided guidance on how much to contribute to an HSA and 10% note they receive information on how to invest money in their HSAs.

Encourage employers to make the benefits enrollment process more active and less passive. You can choose to have employees opt out of certain benefits rather than opt in so they’ll be more likely to pause and read more about each benefit.

Direct links from HDHPs to HSAs, followed by FSAs and voluntary benefits, can provide a more holistic view so workers can see how their benefits choices can work together to help them with financial wellness now and in the future.

Work with employers to set clear expectations and metrics to measure workers’ interests, engagement and enrollment. After all, the success of any benefit is measured by whether employees actually make the most of using them. If employers see increasing engagement in any benefit, they’re more likely to continue offering that benefit and even expanding offerings in the future.

Unique, Year-Round Opportunities To Engage Employers

As the landscape across all benefits becomes more competitive, HSAs and FSAs can offer brokers reasons to connect with employers throughout the year. These touchpoints can be an easy differentiator for you as you help employers take advantage of these accounts. This, in turn, gives you more flexibility in plan design and other offerings. In addition to helping employers select their HSA provider and features, brokers can work with providers to track interest and participation. Then they can offer their knowledge in planning and communicating about HSAs, beginning with enrollment and then during the year.

Brokers can use reports to encourage employers to send communications throughout the year using various methods — email, apps, online and, yes, even good old-fashioned print mail. Reminders can include information about beneficiary designations, contribution limits, employer incentives, and ways to use, invest and save HSA balances. The more employees feel informed throughout the year, the stronger their understanding and confidence in their HSA, FSA and other benefits choices will be during open enrollment.

Help employers give their workers more confidence and control of the wheel. HSAs and FSAs are part of a broader financial wellness strategy for employers, employees and brokers. They can provide important tax-advantaged savings and spending opportunities to and through retirement, demonstrate to employers the value of brokers’ benefits experience in an ever-evolving health and financial environment, and create touchpoints to broaden and deepen relationships.

Rob Grubka is president, Voya Employee Benefits. Rob may be contacted at [email protected].