If you’ve decided to implement a High Deductible Health Plan (HDHP) as part of your benefits package, congratulations. These plans can help companies lower their benefits spend as well as increase employee satisfaction with company benefits offerings (which can increase their satisfaction in their job). But in order for the implementation strategy of your HDHP to be successful, you need to ensure employees adopt it.
Here are the four necessary steps to ensuring implementation success:
- Offer a Health Savings Account (HSA) with your HDHP
- Educate your employees as to the benefits of participating in this type of health insurance and savings account
- Commit to making an employer contribution to employees’ accounts (and get employees to commit to contributing as well)
- Make sure your HSA has built-in flexibility
We’ll go into the details below.
1. Offer a Health Savings Account
While HDHPs typically have the lowest monthly premiums of all the traditional group health insurance options, they also tend to have the highest deductible. The minimum deductibles for these types of plans are set each year by the IRS and adjusted annually for inflation. Higher deductibles can make employees hesitant to sign up for an HDHP, even though preventative care is 100% covered regardless of whether or not the plan participant has met their deductible. That’s where an HSA comes in.
HSAs are the corresponding benefit to HDHPs. Plan participants can only sign up for an HSA and contribute to this account while they are actively enrolled in an HDHP (as long as it’s their only health insurance coverage). These accounts were formed as a way for HDHP participants to save for their deductibles and other health care costs tax-free. Their savings grow tax-free and whatever they spend on qualified medical expenses is tax-free as well (this is known as the triple tax advantage of HSAs). Employees own these accounts so their contributions never expire and roll over from year-to-year, enabling them to build a health safety net. And when employees retire, they still get to keep their HSA, only it begins to function as a traditional retirement account. That means employees can use their contributions on whatever they want, paying no income tax on distributions for qualified medical expenses and the appropriate income tax rate on everything else.
These attributes of an HSA can help ensure your implementation of your HDHP will be a success:
- Increased adoption of your HDHP because now they have a tax-advantaged way to save for their deductible.
- Increased engagement with the HDHP because now they have a tax-free way to save and pay for out-of-pocket medical expenses.
- Increased employee satisfaction with company benefits because HSAs are a highly popular benefit on their own.
- Increased cost savings because the more employees that sign up for your HDHP, the lower your monthly premium cost. In addition, the money employees contribute to their HSA is taken out prior to their income tax assessment, which can lower your FICA responsibility.
2. Educate employees on the benefits
In order for employees to get the most out of their benefits, they have to know what’s available and how to use it. If this is the first time your company is offering an HDHP with an HSA, there’s a chance your employees aren’t familiar with this type of benefit. So make sure you create clear communication collateral for open enrollment that highlights attributes of an HDHP/HSA combination and how it can benefit your employees.
Once employees have signed up for this plan, distribute ongoing education pieces throughout the year, reminding employees how much they can save, what they can use their HSA for, and more. Here are some of the high points your communications should touch on:
- They must be enrolled in an HDHP (and it must be their only health insurance) in order to contribute to an HSA.
- 100% of a long list of preventative care is covered prior to the deductible being met.
- HSA contributions are tax-free in the year they’re made, they grow tax free and distributions made for qualified medical expenses are tax-free as well.
- The annual contribution limit for individual and family plans (which are set by the IRS each year) and an additional $1,000 catch-up for anyone 55 or older.
- How much the company will be contributing (either matching or a flat contribution) to each employee’s account.
- Employees can choose to keep their contributions in a savings account or invest them in the marketplace (as long as your HSA administrator provides this service), which can empower them to grow their savings at an even faster rate.
- They can adjust their HSA contributions at any time.
- They own their contributions, so even if they lose the ability to contribute to their account because they are no longer covered by an HDHP, they can still use their previously contributed money for out-of-pocket medical expenses.
- Any pertinent information employees need to know about onboarding and accessing their account.
3. Commit to an employer contribution
Committing to a contribution takes two steps. First, as an employer, you should consider whether or not you want to contribute to employees’ HSAs. Studies show that employees are more likely to contribute to HSAs (and to contribute more) when their employers also make a contribution to their account. So if it’s in your employee benefits budget, it’s worth considering offering an employee contribution match or a flat annual sum for each employee’s HSA.
In addition, as part of your ongoing employee communication, you can remind employees to treat their HSA contribution goal as a financial goal. Encourage them to “commit to contributing” every month or set up automatic contributions. This can help keep employees engaged with the HSA and remind them of the benefits of saving, at times when it could be tempting to divert the money they’re contributing to other areas. If possible, work with a provider that enables employees to contribute directly from their paychecks, pre-tax, in order to make contributing as easy and beneficial as possible.
By encouraging employees to contribute as much as they can to their HSA, you could increase their engagement with the account, as well as your FICA cost savings and you could increase employee satisfaction with the benefit (every time they see their account balance has gone up, they will get a little hit of dopamine).
4. Allow for flexibility
One of the most attractive attributes of an HSA is its inherent flexibility in design. Your HSA should be able to work for any employee at all times. That means you should build these features into your plan design and communicate said features in your employee education pieces:
- Employees should be able to increase, decrease or pause their contributions at any time.
- They should be allowed to invest their contributions (and as much of their contributions as they want), so look for an HSA provider like Lively that has this capability.
- Employees should be given a debit card for point-of-sale purchases.
- The HSA provider should offer an app for account management on-the-go.
- There should not be a time limit for reimbursements as long as the expenses were incurred after the HSA was active.
To help your employee education, we've compiled the more frequently asked questions that employers get asked about HSAs so you are equipped to provide your employees with comprehensive answers.
How Lively can help
Lively is your partner in creating the most comprehensive benefits package for your budget. We offer best-in-class UX design and customer service and our HSA beats the industry average for contributions every year. If you’re ready to level-up your benefits offerings, reach out 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.