Employers are increasingly turning to high deductible plans (HDHPs) to keep their health insurance benefits affordable for themselves and their employees. Enrollment in these plans has increased steadily, surging in recent years. As of August 2018, 47% of privately insured adults in the US were enrolled in HDHPs.1
The premiums for high deductible plans are lower, but the out-of-pocket costs can be significantly higher. Health savings accounts (HSAs), offered with many HDHPs, including those offered by Tufts Health Freedom Plan, are an effective way for plan members to offset those higher out-of-pocket costs—including copayments, coinsurance, dental and vision services, and many over-the-counter drugs—and save for unexpected medical events.
Understanding how HSAs work
An HSA is similar to a 401K plan: Employees own the account and contribute money on an ongoing basis, usually through paycheck deductions. They can withdraw the money they contribute at any time, tax-free, to cover qualifying medical expenses. Employers can make contributions, too. Meanwhile, the funds in the account can be invested and earn interest, just like in a 401K. There’s no time limit on when the money in the account needs to be spent; it can be used for longer term medical costs or even retirement. What’s especially appealing about HSAs is that employees can take their accounts, and the money in them, along with them if they leave one job for another.
There are two other variants of health savings account that employers sometimes offer, which can lead to confusion: A Flexible Spending Account (FSA), like an HSA, allows both employees and employers to contribute funds for medical expenses. But there’s a key difference: whatever money is put into the FSA has to be used within a certain timeframe, usually a year. If the employee doesn’t use it all, or leaves for a different job, whatever is left goes back to the employer. Another type of account, a Health Reimbursement Arrangement (HRA), is funded by the employer only. The funds generally roll over from year to year, but the account doesn’t go with the employee if they leave. An HRA is sometimes offered in combination with an HSA or FSA.
If you offer an HSA (as opposed to an FSA or HRA), it’s important to educate your employees about what it is, and how it works. Only 51% of Americans say they’re knowledgeable about HSAs, and two in five mistakenly believe that HSA balances have to be spent by the end of the year or be forfeited.2
HSA usage is on the rise—and shows no sign of stopping.
As high deductible plans become more prevalent, more and more people are taking advantage of the benefits of HSAs. In 2018, the number of HSA accounts surpassed 25 million, and the total assets in those accounts reached $53.8 billion—a year-over-year increase of 13% for accounts and 19% for HSA assets. It’s projected that the HSA market will approach $75 billion in assets by the end of 2020, spanning roughly 30 million accounts.3
HSA usage is on the rise among Tufts Health Freedom Plan members too. Employers that offer our Advantage HMO Saver and Advantage PPO Saver plans have the option to offer their employees HSA accounts from one of our partners—and will benefit from lower premiums if they do. We work closely with our HSA partners to help ensure that contributing to and using the accounts is simple and hassle-free, for both employers and members. We’ll also help you make sure that your employees fully understand how their account works, and what the advantages are of using it. When you give your employees an HSA, you’re not only helping them control their costs; you’re giving them a way to take greater ownership and control of the way they spend their health care dollars.