What’s happening with HSA growth?
HSA enrollment has slowed in recent years. What's behind the trend, and will it continue?
Have employees fallen out of love with high-deductible health plans and health savings accounts? According to research from EBRI, after the significant gains HSA enrollment has seen since their inception in 2004, growth rates have been slowing down in recent years.
“We’re not seeing tremendous growth rates anymore, but you are seeing strong growth when you look at administrative records from providers,” said Paul Fronstin, director of health and research education at EBRI in a recent webinar exploring the potential factors behind the lagging growth.
Related: IRS announces 2020 HSA limits
Depending on what numbers you’re looking at, HSA enrollment growth may not actually be that sluggish. According to EBRI survey data, 17 percent of HSA enrollees opened their accounts within the past year, and 26 percent within the past 1 to 2 years. “You do have a lot of new entrants going into these plans,” Fronstin said.
So what’s going on? As employees’ needs change, they may decide an HDHP is no longer for them and switch to a different insurance plan, discontinuing their HSA. “Surveys do not take into account disenrollment that might be offsetting new enrollment,” Fronstin said. “We found that 5 percent of HSA-eligible enrollees in 2014 switched to a different health plan the following year. Disenrollment is offsetting some of the strong growth we’re seeing in new enrollment such that the net number is not growing as fast as we think it would be.”
Still, according to projections from Devenir, the HSA market is expected to grow in value from just under $54 billion in 2018 to nearly $75 billion in 2020. “This is a very dynamic market,” said Roy Ramthun, president and founder of HSA Consulting Services. “None of us knew 15 years ago how fast HSAs would grow and how the market would respond. At some point, it can’t continue to grow 30 percent per year.”
How much can we expect HSA enrollment to grow? That depends. Fronstin noted a list of factors that EBRI sees as hampering growth of HSAs, including:
The delay of the Cadillac tax: “There was a lot of discussion and expectations that when the Cadillac tax passed as part of the ACA and took effect, it would drive increasing number of employers to an HSA ell health plan,” Fronstin said. But as the tax has been repeatedly delayed, employers have felt less urgency to move to an HSA plan.
Increases in premiums: “Increases in premiums have been moderate over the last decade or so, closer in line to overall inflation,” Fronstin said, which also contributes to a decreased urgency.
Low unemployment: “We’re at a point with historical rates of unemployment,” Fronstin said. “Employers are concerned about recruiting and keeping workers. To a degree, they think that going to going to HDHP could be seen as a cut in compensation.”
Exclusions from deductibles: “There are certain high-value procedures that are subject to the deductible. If you have employers more flexibility around what could be excluded from the deductible, you’d have more employers offering HSA eligible hp and more employees taking them.”
On the flip side, there are factors that could spur more increased enrollment in HSA-eligible plans. Key among them, Fronstin said, are increasing deductibles and premiums for other health care plans are starting to make them less appealing.
When you look at what’s happened to deductibles in PPOs, they’ve gone up almost threefold, whereas HSA deductibles have not even doubled,” he said. In 2007 HSA deductibles were four times that of a PPO plan, but today it’s only about twice as much.
“What may happen, you have more PPOs that are closer to being HSA eligible, and it’s easier to make them HSA eligible,” Fronstin said. “And at some point, workers may send a message to their employer and ask them to offer an HSA because they already have a high deductible.”
Another factor that could drive enrollment is greater focus on financial planning for retirement. A key feature of HSA accounts was the ability to accumulate balances to be used for long-term health needs–a concept that enrollees have been slow to embrace. “When we look at year-over-year account activity, we see increases in contributions and withdrawals, but every year leaving a positive carry-forward balance,” Ramthun said. “The longer someone has had their account, the more likely it is their balance is higher.
“Financial planners are asking to be involved in those types of decisions, especially when people are facing the possibility of high health care costs in retirement,” he added. “Are employers hearing this call yet to have this discussion on leveraging with the retirement plan? It’s starting, but we have a ways to go.”
And while the low unemployment rate may make employers shy away from HDHPs, for those that do embrace them are offering incentives to match. “In 2018, employer funding of HSAs hit a new high, almost $9 billion dollars,” Ramthun noted. “That’s one way employers may be redirecting contributions to employee benefits.”
Finally, while the delay of the Cadillac tax is sighted as a potential hindrance to HSA adoption, there’s also a long list of legislation that could potentially expand their use and drive growth. One proposal would nearly double the HSA contribution limits, Ramthun said, while others aim to expand eligibility. “One of the primary initiatives is to allow individuals reaching Medicare age not automatically be disqualified but allow them to contribute to their HSA by allowing them to stay HSA eligible or allowing them to opt out of Medicare part A.”
Other proposals aim to expand HSA-eligible expenses to include things like fitness and wellness activities, over-the-counter medications, telemedicine, preventive treatments for chronic conditions, FMLA expenses, home care expenses, direct primary care arrangements and many more. “There’s lots of creativity here in terms of how funds may be able to be used on a tax-free basis which may enhance the appeal to more Americans,” Ramthun said. “These are all new dynamics in the marketplace that may impact the outcome of HSA enrollment in the future.”
Then there are the legislative health care proposals that would have an indirect on HSA growth. Namely, those targeting price transparency, such as the bipartisan proposal from Senators Alexander and Murray. “This is one of the areas that HSAs have been criticized for,” Ramthun said. “There’s not enough information to help consumers in their purchasing and using the money in their HSA.”
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