HDHPs Can Hamper Employee Health Without an Attached HSA
In recent years, employers and self-employed Americans have been migrating to high-deductible health plans (HDHPs) but, if they are not attached to a health savings account (HSA), they can end up costing the plan participant more than they can afford and create health problems for them down the road.
HDHPs typically have reduced premiums in exchange for the employee taking on a higher deductible for health care expenditures. The average person enrolled in an HDHP saves 42% in annual premiums, compared to those enrolled in preferred provider organization plans, according to research from BenefitFocus.
But in order to afford paying those deductibles, an attached HSA can help them sock away funds pre-tax to ease the burden.
That’s because HDHPs may leave families facing at least $2,700 in potential deductibles, and up to $13,500 in out-of-pocket medical expenses per year. In 2018, the average HDHP deductible was $4,133 per year for family coverage and $2,166 for single coverage.
For some people, this can pose a problem because:
- 60% of Americans don’t have $1,000 in emergency savings.
- 44% would have trouble meeting an unexpected $400 expense.
As a result, many HDHP beneficiaries find themselves putting off care, rationing their medications, or going without altogether. But this often leads to even greater expenses down the road, lost work, productivity losses – and even disability and death. Besides the toll it takes on the employee, their work for you can also suffer.
You can do your part to help your workers avoid this situation by providing an attached HSA, which can be crucial in helping them meet their medical bills.
How HSAs work
HSAs are one of the most tax-efficient savings vehicles in the tax code, and a potent tool for both insurance planning and retirement planning.
These tax-advantaged savings accounts are specifically designed to help people pay their health insurance deductible.
- Contributions are tax-deductible. What’s more, if you offer the benefit via a Section 125 cafeteria plan, HSA contributions aren’t subject to Social Security and Medicare payroll taxes.
- Balances accrue tax-deferred. And if participants don’t need to tap their HSA money for health care expenses, once they turn age 65, they can withdraw that money for any reason, penalty-free. All they pay is income tax.
- Withdrawals to cover qualified medical expenses are tax-free.
What to do
Employers and plan sponsors should work to bridge the gap between deductibles and what employees can actually afford. Otherwise, the short-term saving is likely to be overwhelmed by absenteeism, presenteeism and future medical costs. You should:
- Consider contributing to or matching employee contributions to health savings accounts.
- Beef up flexible spending account benefits to help workers with current health issues, and to fund preventative care such as eye exams – which can help detect diabetes.
- Offer critical illness insurance.
- Implement or expand workplace wellness programs. A study from Health Affairs found that well-executed wellness programs generate a return of $3.27 per dollar invested.
- Invest in worksite vaccination and screening programs.
- Speak with your health insurance carrier or us about using wellness dollars designed to help employees reduce long-term medical costs.