A recent data brief from the Centers for Disease Control and Prevention illustrates the growth in popularity of high-deductible health plans (HDHPs) over the past decade. Between 2007 through 2017, the CDC data show, the percentage of adults 18–64 with employer-provided health insurance who were enrolled in an HDHP with a health savings account increased from 4.2 percent to 18.9 percent, while the percentage enrolled in an HDHP without an HSA rose from 10.6 percent to 24.5 percent. In 2017, enrollment in HDHPs was highest among adults aged 30–44 than among other age demographic.
The greater an individual’s family income level and educational attainment, the more likely they were to be enrolled in an HDHP with an HSA, the CDC found, while the likelihood of enrollment in both traditional health plans and non-HSA high-deductible plans decreased as income and education rose. This may reflect a greater understanding of the investment value of HSAs among higher-earning and more educated employees.
Other recent data tells a similar story: Last year, Bank of America Merrill Lynch’s Plan Wellness Scorecard found that more employers were offering HSAs, more employees were using them, and their account balances were growing. That report also found that employees were using about 70 percent of their HSA contributions to cover health expenditures during the year and saving the other 30 percent for future expenses.
However, while the adoption of HDHPs has certainly grown over the past decade, our benefits research at Gartner shows that their popularity has been leveling off over the past three years, when deductibles for individual plans have actually been trending downward. (Gartner Total Rewards Leadership Council clients can view our full report on medical plan trends and observations for 2018 here.)
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High-deductible health plans have emerged in recent years as an increasingly popular means of controlling the growing costs of employer-sponsored health insurance in the US, particularly for healthy employees who don’t anticipate significant health care expenditures and would prefer to pay lower health insurance premiums, even if it means paying higher out-of-pocket costs when these expenditures do arise.
The State of Employee Benefits 2018 report from the benefits technology and services company Benefitfocus indicates that the shift to HDHPs accelerated last year among large US employers, though in most cases, these plans are offered to employees as a choice alongside traditional plans like preferred provider organizations. SHRM’s Stephen Miller outlines the key findings from the report, which analyzed data from 540 large employers with over 1.3 million insured employees:
For 2018, 70 percent of large employers offered at least one HDHP—either in addition to a traditional health plan (65 percent) or exclusively as a full replacement for traditional health coverage (5 percent). … When employees at large organizations were given options, 35 percent selected an HDHP while 48 percent chose a PPO for 2018. The remainder opted for other types of traditional plans, when available, such as health maintenance organizations.
Bank of America Merrill Lynch’s 2017 Plan Wellness Scorecard, an annual report on trends in financial wellness and retirement planning based on the behavior of plan participants and sponsors in the financial firm’s 401(k) business, shows that US employees’ engagement with their employer-sponsored retirement plans increased last year. Among the report’s key findings is a significant growth in the use of Roth 401(k)s, Patty Kujawa observes at Workforce, with nearly a third of employees who have access to a Roth 401(k) increasing their contributions last year—half of them millennials:
Sylvie Feist, BofA Merrill Lynch’s director of financial wellness strategy, said employers are adopting a broader perspective helping their workers gain confidence in making money decisions. They are simplifying plans by using express enrollment, automatic features and by offering more ways to save. According to the survey, 57 percent of employers who offer a traditional 401(k) also offer the Roth option. In addition, the Roth option recently became a one-click and done selection in BofA Merrill Lynch’s Advice Access online advisory service tool.
The Plan Wellness Scorecard also found that more employers are offering health savings accounts and more employees are using them: The number of employees using HSAs increased 21 percent, and HSA balances grew by an average of 36 percent.
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Kevin Mahoney, senior institutional consultant at The Mahoney Group of Raymond James, a financial advisory firm, wants employers to take 401(k) plans and health savings accounts (HSAs) out of their silos and consider them instead as two sides of the same long-term financial-planning and investment coin. SHRM’s Stephen Miller shares his notes on the talk Mahoney gave at SHRM’s 2017 Annual Conference and Exposition this week:
HSAs have triple tax advantages. While funds contributed to either an HSA or a traditional 401(k) are excluded from income taxes, HSA contributions, up to annual limits, are also excluded from FICA and FUTA payroll taxes. In addition, funds can be withdrawn from an HSA on a tax-fee basis to pay for health care expenses.
“Many people don’t realize that if you save your health care receipts in a file today, then during retirement you can withdraw HSA funds tax-free against those years-old receipts,” which can turn the HSAs into a fund to pay for more than just future health care expenses. These advantages lead to a startling idea: “HSA savings is probably the best approach a young employee can take, so contributing to an HSA up to the limit—even before contributing to a 401(k)—makes sense,” Mahoney said.
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US president-elect Donald Trump has sent mixed signals on his plans for health care policy, campaigning on a pledge to repeal and replace the Affordable Care Act, then indicating after the election that he would try to retain the law’s most popular features, such as the provision barring insurers from denying coverage to people with preexisting conditions.
On Tuesday, Trump’s transition team announced that he had picked Georgia Representative Tom Price as his secretary of of health and human services. As the New York Times reports, Price has been an outspoken critic of the ACA and the author of legislation proposing an alternative to outgoing President Barack Obama’s signature legislative achievement:
The legislation Mr. Price has proposed, the Empowering Patients First Act, would repeal the Affordable Care Act and offer age-adjusted tax credits for the purchase of individual and family health insurance policies.
The bill would create incentives for people to contribute to health savings accounts; offer grants to states to subsidize insurance for “high-risk populations”; allow insurers licensed in one state to sell policies to residents of others; and authorize business and professional groups to provide coverage to members through “association health plans.”
This selection suggests that Trump is serious about working to dismantle the ACA and pursue the Republican party’s alternative vision of health care reform instead, but it’s still not clear what that alternative will end up looking like, or what this might mean for employers, benefits experts tell Kathryn Mayer at Employee Benefit News:
A new benchmarking study from Wells Fargo Insurance indicates that financial incentives don’t have as much impact on health savings account take-up as employers might think, Matt Skoufalos writes at Employee Benefits News:
Consequently, employers could realize savings by cutting off contributions to those plans, and drive bigger behavior changes by building a holistic culture of wellness through C-suite-level behavior.
“These were the biggest surprises to us from the study,” says Dan Gowen, national practice leader with Wells Fargo Insurance’s Employee Benefits National Practice. … The study found no relationship between the amount of employer-funded HSA dollars and the percentage of employees enrolled in a plan. Furthermore, the study also observed no relationship between the size of a financial incentive opt-out and the percentage of eligible participants who waived it. …
Ann Carrns, who writes about personal finance at the New York Times, is a champion of the health savings account, which she has praised as a valuable financial planning tool that is unfortunately underutilized. One reason for this is that many people don’t understand the tax benefits of an HSA, and workers with lower incomes, in particular, seem less likely to take advantage of them. Carrns points to a new study finding that low-income employees whose health plans include HSAs tend to make less use of them than their better-off peers:
A new analysis by the Employee Benefit Research Institute found that while workers over all in a health plan with an H.S.A. visited the doctor less often for nonpreventive care, the decline was more than twice as large for workers who made $50,000 or less, compared with those who made $100,000 or more. Lower-income workers were also more likely to reduce their use of important preventive services, like flu shots and breast cancer screenings, even though such services aren’t subject to the deductible and are covered at no cost. …
Alison Galbraith, an assistant professor at Harvard Medical School who has studied the effects of insurance policy on health, said lower-income patients may avoid free preventive care because they don’t understand the details of their policies. “The plans are complicated,” she said, “and they may not be sure what’s covered.”
It’s also likely, she said, that because they may avoid office visits, in general, to avoid incurring costs, lower-income workers are less likely to be reminded to follow up with free services, like immunizations. And they may be concerned that while visiting a doctor for a covered screening, they may also end up with extra care — say, a chest X-ray — that’s not covered.
The lesson here, Carrns stresses, is not that lower-income workers should avoid HSA plans, but rather that they need to know more about how their plans work. We’ve talked before about the importance of getting benefits communications right: Retirement savings and health insurance plans can be complicated instruments, and making sure employees understand how to maximize their benefits is typically a win-win for employers and employees.