4 ways to fuel HSA growth

Since their inception in 2003, Health Savings Accounts (HSAs) have seen consistent year-over-year growth.

And, that’s not about to change. Quite the opposite, in fact, HSA adoption and contributions are predicted to skyrocket over the next three years, and by 2021 HSAs are expected to dethrone FSAs as the most popular health benefit account type.

According to the Aite Health Benefit Accounts Market Forecast:

• Between 2017 and 2021, HSAs are predicted to grow from comprising 35 percent of all health benefit accounts to 44 percent. During the same period, HRAs will drop from 21 percent to 17 percent and FSAs from 44 percent to 39 percent.
• The number of HSA accounts will rise from 18.6 million in 2017 to a predicted 42.6 million in 2021. That’s a compound annual growth rate (CAGR) of 18 percent for HSAs, compared to just 5 percent for HRAs and 8 percent for FSAs.
• In 2017, HSA payments totaled $29.8 million, or 38.9 percent of all health benefit account payments. By 2021, that figure is expected to reach $66 million, almost half of all health benefit account payments.

So, what’s causing all this growth?

The predicted meteoric rise of HSAs might seem surprising at first. That is, until you realize how many market forces are at play:

1. Consumers are becoming increasingly responsible for their health care costs Employers need to control rising health care costs, and are adopting consumer directed health plans (CDHP) as a way to reduce premiums and shift more of the cost responsibility to consumers. As HSA-eligible health plans become a standard element of employer benefit packages – sometimes replacing traditional plans altogether – HSA adoption is growing rapidly.

2. HSAs offer unmatched tax benefits

HSAs offer huge tax benefits for employees, sometimes referred to as the “triple tax” advantage: HSA contributions are made tax-free, accrue interest tax-free, and can even be withdrawn tax-free when used for eligible health care expenses.

From a tax perspective, this makes HSAs even more attractive than 401(k)s, which are taxable upon withdrawal.

3. HSAs are long-term savings vehicles

While we’re on the subject, many plan providers have started to position HSAs as being similar to 401(k) accounts.

Why? Partly because they’re on a similar market trajectory to the one 401(k)s followed when they were first introduced, and mostly because – like 401(k)s – HSAs are an outstanding vehicle for long-term savings.

With a such a strong market message that aligns HSA benefits with the needs and desires of employees, it’s only natural to see an increase in adoption.

4. HSAs offer protection from out-of-pocket costs

Because of the tax benefits and long-term savings opportunities they offer, HSAs are a key component of an overall financial wellness strategy. Since consumers are taking on increased responsibility for their health care costs, HSAs are an important tool to protect against large deductibles and out-of-pocket costs, both now and in retirement.

Simply put, HSAs are the best way for consumers to maximize the value of their health care dollars.

5. Consumers are becoming more conscious of their health care spending and saving decisions

You could argue that it’s been a long time coming, but the evidence is clear. Increasing financial responsibility for health care is driving consumers to become more cost and value conscious.

More than ever, consumers are doing their research and taking the time to really understand their health plans. And, when consumers start taking a more active interest in their health care funding, they naturally gravitate towards plans and accounts that put them in the driver’s seat.

Unlike FSAs and HRAs, which belong to employers, HSAs are owned by employees, meaning they retain the account even if they change employers or health plans. As a result, HSAs are the natural choice for consumers’ long-term health care needs.

Four ways to fuel HSA growth

Research affirms that HSA participants are the savviest health care consumers – they’re demonstrably more fluent in health care concepts and engaged in decision-making than their peers.

According to the 2018 Alegeus HSA Participant Profile Report, relative to the general population, health savings account holders are 54 percent more confident in forecasting out-of-pocket health care costs, 46 percent more likely to research and compare costs, 37 percent more likely to seek alternatives, 68 percent more likely to have a savings goal, and 80 percent more likely to be saving aggressively for their future health care savings.

In light of this, as well as the substantial benefits HSAs offer to both employers and employees, you might wonder what you can do to help sustain their predicted rise in uptake.

Whether you’re an employer, broker or plan administrator, there are plenty of options open to you:

1. Educate employees

If you’d like more of your employees to join the ranks of informed HSA participants, education is essential. Many consumers still lack fluency in basic health care concepts and need substantial training and support in order to understand how HSAs could benefit them.

To give you an idea of the problem, only 19 percent of the general public can pass a basic true or false proficiency quiz on HSAs, compared to 29 percent for FSAs.

Fortunately, the benefits offered by HSAs are undeniable, and if you can effectively communicate their value to employees, you can expect to see a considerable increase in account adoption.

2. Separate fact from fiction

Sadly, while HSAs are undeniably growing in popularity, there are still plenty of persistent misconceptions surrounding them. Here are some of the most common (and damaging) myths we hear:

• “HSA are use-it-or-lose-it; you lose any unused funds at the end of each plan year.”
• “HSAs are just a spending account to help save on this year’s expenses.”
• “If you leave your employer, your HSA funds are forfeited.”

Needless to say, all of these statements are completely false… but still, many people still believe them. Busting these types of myths is a simple but effective way to illustrate the value of HSAs and, as a result, increase their adoption.

3. Incentivize employee participation

There’s no getting around it. If employers really want to see more employees opt for HSAs and HSA-eligible plans, the single most important thing they can do is incentivize employee participation by contributing to the accounts.

According to Consumerdriven, LLC, large employers see a 37 percent adoption rate of HSAs when they contribute $800 or more. By contrast, employers offering no contribution only see a 22 percent adoption rate.

4. Reinforce the value of HSAs year-round

One of the biggest mistakes you can make is to only provide educational materials for employees during open enrollment. Instead, you should communicate and reinforce the benefits of HSAs throughout the year, focusing on timely information that guides account holders to optimally fund, spend and invest their health care dollars. In addition, employees that choose an HSA-eligible health plan can open an HSA at any time during the year, not just open enrollment.

To ensure your message is communicated effectively, it’s best to offer educational resources across a range of formats. Webinars, lunch and learns, on-demand videos, displays, dedicated Intranet pages, and account comparison tools are all strong options.

For busy people, health plans and benefit accounts of any type can be difficult to understand. So, while HSAs are predicted to see continued strong growth over the next few years, don’t let that lull you into a false sense of security. If you want to see increased uptake of HSAs among your employees, strong, consistent, year-round communication alongside an account contribution is your best route forward.

Jennifer Irwin is senior vice president of Marketing & Strategy for Alegeus.