The importance of HSAs in saving for future health care needs can’t be underestimated
The COVID-19 pandemic has highlighted the significant financial benefits health savings accounts (HSAs) can offer for employers and employees.
In 2020, the COVID-19 pandemic changed every aspect of our lives, including how employers and employees view healthcare benefits, especially Health Savings Accounts (HSAs). 2020 underscored the need to be better prepared for health expenses and the significant financial benefits that HSAs can offer for both emergency health care spending and retirement savings for employees. When combined with a high-deductible health plan, HSAs offer savings and tax advantages that a traditional health plan can’t duplicate.
Unprecedented demand for HSAs
In 2020 there was unprecedented demand for robust HSA programs as employers look for ways to control costs in 2021 and help their employees make the most of their health care dollars. Because an HSA stays with the employee, not the employer, it’s also very attractive for employees worried about paying for health care costs if they are furloughed or laid off.
There was also a large pause in HSA spending – people were not comfortable or in some cases able to go to the doctor, so the average HSA balance has grown significantly.
Virtual open enrollment
Another big change in 2020 was that for the first time, open enrollment was largely virtual, proving that employers need to and can adapt in this changing environment to look for new ways to engage their employees.
Employers were deliberate about trying to “walk in their employees’ shoes” and considered different generational needs and understandings before deciding how to approach virtual communication and engagement.
Benefit communication changes
When it comes to education and communication, the COVID-19 pandemic has shown that being adaptable and inclusive is paramount, so communicating with employees will be especially important moving forward.
In 2020, employees were able to take the time to review and digest information and options, and take advantage of online tools available, such as health plan decision support, videos/presentations, webinars, and virtual group discussions.
2020 trends continue in 2021
Moving into 2021, employers should continue to sharpen their focus and raise their expectations for virtual programs. In addition to supporting employees in this moment, moving forward, employers will truly see the value of ongoing year-long education as well as continuing the virtual style of open enrollment.
In addition to this, many of the other workforce trends seen in 2020 will continue into 2021 as the country continues to battle the pandemic.
Telehealth, for example, is here to stay as a viable option to meet with health care providers. The CARES Act, which was passed in mid-2020, allowed HSA-qualified HDHPs to cover telehealth services before reaching the deductible without impacting their eligibility for an HSA.
While the extension is valid until December 31, 2021, this change may be made permanent based on the ease-of-use telehealth gives consumers.
HSAs as investment vehicles
The future health care savings opportunities that an HSA offers is like no other and something to fully maximize in 2021. HSAs offer the flexibility to save and invest funds for years to come and need to be repositioned as a long-term health savings and investment tool.
Employees should be encouraged to start investing within their HSA to save for retirement, similar to their 401(k). They should look at both to determine the best way to take into consideration HSA benefits when making those saving and investing decisions at every step of their career, starting in their early 20s.
HSA funds used to pay for medical expenses will be not be taxed but those same 401k funds used for medical expenses will be taxed. For example, using $1,000 in HSA funds to pay for medical expenses would be equivalent to $1,200 in a 401(k), given a 20% income tax rate.
Potential industry changes
HSAs are evolving and as an industry, we continue to work with legislators on significant bipartisan proposals that could affect both their application and advantages, such as decoupling HSAs from HDHPs and allowing Medicare enrollees to open and contribute to HSAs.
As of 2019, only 30 percent of American private industry employees have access to HSAs, but decoupling and Medicare expansion could dramatically increase this number.
If all Americans with public or private health insurance plans were eligible for an HSA, virtually all Americans could benefit from tax-free health savings, helping everyone better address current expenses and save for their future needs.
Fully maximize HSAs for both employers and employees in 2021
The COVID-19 pandemic has highlighted the significant financial benefits Health Savings Accounts (HSAs) can offer for employers. When combined with a high-deductible health plan, HSAs offer savings and tax advantages that a traditional health plan can’t duplicate.
As we move forward into 2021, employers have learned valuable lessons about engaging with employees virtually, focusing on education year-long, and communicating the benefits of investing in an HSA for retirement savings. Because HSAs offer the flexibility to save and invest funds for years to come – the future health care savings opportunities of HSAs are like no other, and something to fully maximize for both employers and employees in 2021.
