How Can an HSA Help Employers Control the Cost of Healthcare?
- Lauren Hargrave
- 6 min read
As the economy falters and the future remains uncertain, the days of “growth at any cost” are long behind most companies. Now, efficient growth is the name of the game and to achieve this, special attention must be paid to your overall budget, especially the cost of employing talent. Whether you’re looking to hire or are trying to “do more with less” after a recent downsizing, the company’s per employee cost is something every Vice President or Director of HR must manage. Offering a Health Savings Account (HSA) can help you do that.
HSAs help give you greater control over your health insurance budget, they lower the cost to hire and maintain talent and they provide an important financial wellness benefit that can improve employees’ productivity. Here’s how.
How much large companies spend on health insurance
At this point, saying, “The cost of health insurance is on the rise,” goes without saying: It’s an undisputed fact. The only real question is: how much will your health insurance budget increase in 2023? The answer: likely 5.3% and the average healthcare plan will cost $13,800 per employee.
In 2022 according to KFF, health insurance premiums for covered workers at large firms averaged $7,873 for individual plans and $22,564 for family plans. This was 17% higher than just five years ago. If your company offered a PPO, the average premiums were $8,272 for individual plans and $23,426 for family plans, while High Deductible Health Plans (HDHP) had average premiums of $7,288 for individuals and $21,136 for families. On average, an employer covers 78% of its employees’ premiums. So combine the cost of health insurance premiums with the fact that the cost of compensation is up 5% and any company with more than 1,000 employees is looking at a hefty price tag just to maintain their workforce.
Now, the actual cost of your premiums is going to depend on where your company and employees are located (e.g. they’re higher in the northeast and lower in the south) and the demographic makeup of your workforce (younger employees tend to pay less than older employees). But one thing is clear, regardless of where your employees are located and what their demographic characteristics are, it will cost you less to cover them under an HDHP than under a PPO.
Offering an HSA will help you do that.
How HSAs help reduce your health insurance spend
On its own, an HDHP, which carries a higher deductible which is set by the IRS each year, could be seen as a budget health insurance option that carries a certain level of risk. Employees might worry about what happens if they need medical care and they can’t afford the out-of-pocket costs. To incentivize employees to choose this type of health plan, you can do two things. First, educate them about what is covered prior to the deductible being met, and second, pair this account with an HSA.
HDHPs typically cover 100% of a wide range of preventative care prior to the deductible being met. As of August 2022, when the Inflation Reduction Act was passed, the cost of insulin is now considered preventative care and is covered prior to the deductible being met. As long as employees don’t have a chronic condition that requires regular specialist visits and prescriptions (other than insulin), an HDHP could be a good health insurance plan option. For care that isn’t considered preventative, and thus isn’t covered prior to the deductible being met, HSAs give plan participants the opportunity to save.
HSA account holders have the ability to save money, pre-tax in a savings or investment account, to pay for future qualified medical expenses including their deductible. The lower monthly premium cost gives plan participants more room in their household budgets and they can divert those savings to their HSA every time they’re paid.
As an employer, because HSAs are pre-tax, they reduce employees taxable income and lower your FICA taxes. In addition, you can contribute to employees’ accounts to indicate your support of this type of health plan and incentivize employees to choose it. Your contributions to employees’ plans also help drive your FICA tax savings.
Another great feature of HSAs is account holders’ ability to invest their contributions. This allows their savings to grow at the rate of the market, further increasing their balances and the medical care for which they can afford to pay for out-of-pocket.
The more employees you have that sign up for an HDHP, the lower your health insurance budget and the cost to employ them and the greater your FICA tax savings. By offering an HSA with your HDHP, you provide an incentive for employees to choose the less expensive option and increase the likelihood they will. But there’s another benefit to offering an HSA– it can help improve employee productivity by increasing financial wellness.
How HSAs help improve employee productivity
Efficient growth requires productive employees. How do you increase productivity? Recent studies conducted by the National Institute of Health showed that physical health is an important factor in employee productivity, but so was financial wellness and the ability for employees to deal with the causes of financial stress.
One phenomenon they studied was called “presenteeism”. This is defined as an employee who is present at work but is using work time to either deal with personal issues or is otherwise unproductive due to financial stress or health issues. Researchers found that presenteeism resulted in a loss of productivity 7.5X greater than absenteeism (when people miss work to deal with personal issues) and costs 3x as much as what’s spent on medical costs.
If you want your workers to be able to focus on the work, you have to support their physical health with good health insurance plans. But you also need to support their mental health by providing them ways to save money and increase their financial wellness. HSAs help achieve both ends.
HSAs support employees’ physical health by providing a way for them to save tax-free and pay for the care they need to maintain physical health. They support employees’ mental health by enabling account holders to save and invest in the future, giving them a sense of stability. If account holders invest their savings, they are able to grow their contributions at the rate of the market.
Since contributions roll over from year-to-year, the compounding effects of their continued saving can enable them to build quite a nest egg, provided they don’t spend everything they deposit. This nest egg can be used for qualified medical expenses even if they’re no longer covered by an HDHP in the future, and once they turn 65, it turns into a retirement account from which they can draw daily living expenses. Qualified medical expenses remain tax-free and all other expenses are taxed at the appropriate income tax rate.
HSAs improve your bottom line
Large companies are experiencing a need to be hyper vigilant about their budgets so they can achieve efficient growth in the current global economic climate. Human resource professionals, and the choices they make, are going to be key factors in whether or not large businesses achieve their goals.
By offering an HSA alongside an HDHP, HR departments will not only encourage employees to choose the less expensive option, thus reigning in their budgets, they will provide employees with an important savings tool that can improve their financial wellness and ultimately their productivity. If you are ready to offer your employees an easy-to-use HSA and control your healthcare costs, reach out to us at Lively today.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.