Education empowers employees to better leverage benefits: A look at the HSA

Even with the majority of today’s workforce actively saving money to pay for healthcare costs, the underlying pain persists: Employees aren’t saving enough money to cover out-of-pocket costs. 

A recent employee survey reported that 50% of participants are anxious about healthcare costs not covered by their insurance. An alarming 46% stated they would be unable to cover $1,000 in unexpected health expenses. Lastly, 15% of individuals surveyed declared that they would have to cut their spending on essential household items to pay their medical bills. Employees feel generally stuck, anxious, and overwhelmed by benefits choices, which yields inaction.

Likewise, HR professionals are stretched thin managing circumstances induced by the pandemic. Under pressure to recruit and retain talent in a national labor shortage, contentious roll-outs for Return to Office (RTO) programs, and a general lack of resources to do their jobs well, more than half of HR leaders are experiencing burnout. Skyrocketing healthcare costs have become HR’s number one priority, which leaves little room to focus on other employee needs, including financial wellness services. 

Education as leverage

As employers prepare for the 2023 benefits enrollment period, they have the opportunity to provide their employees with tools to help mitigate financial stress and improve the financial well-being of the modern workforce; particularly when facing precipitous economic inflation and a predicted recession. 

Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSA)s, and Health Reimbursement Arrangements (HRAs) are great offerings that can provide workers a lot of support. 

Understanding that there will always be inevitable competing financial pressures that prevent employees from taking full advantage of the tools available – like fully funding an HSA – is a given. However, frequent, concise education on how benefits-related offerings can offer short, mid, and longer-term advantages to help combat financial stress supports a route to more informed employee participation and utilization. 

Take one benefit account, the HSA, for example. The average annual HSA contribution of $1,646 is well below the current maximum, with just over one in five employees reportedly opting out of funding their HSA at all. That lack of savings means employees are missing out on leveraging benefits to make what money they can save work harder for them.   

In April, the Internal Revenue Service (IRS) announced that it would be increasing HSA contribution limits in 2023 in response to inflation. Those eligible to save for out-of-pocket healthcare costs with an HSA will see an appreciable increase in the upside potential — 5.5%, to be exact. However, what’s even more critical than new contribution maximums, are ongoing, revised, and intuitive educational initiatives that improve access and foster more productive experiences for employees and employers alike.

HSA reality from fiction

Let’s dig deeper into the HSA to demystify the advantages and disadvantages involved to provide clarity for driving increased and informed adoption and utilization:

Tax ramifications – the upside. The most significant advantage of an HSA is that money goes in AND comes out tax-free – as long as funds are utilized to pay for qualified medical expenses (including a range of medical, dental, and mental health services). Meaning that earnings from interest plus investments fit in the tax-free bucket, enabling employees to capture a triple tax benefit as contributions also count to reduce individual taxable income. 

HSA limits for the current calendar year are $3,650 for individuals and $7,300 for family coverage. Any unspent money that’s eligible to roll over for next year’s future health expenses gives money both portability and convenience. Further, contributions to HSAs can be self-funded or come from an employer, relative, or other parties with limitations implemented by the IRS. In short, an HSA functions as a health-specific bank account that follows an individual from employer to employer, grants significant tax savings (triple tax advantage!), and allows for compounding tax-free profits to accumulate for use for medical expenses now and well into retirement. 

New HSA maximums are great, but getting more employees to save is better.

As employers look toward annual enrollment for 2023 benefits, what’s even more important than new contribution maximums is general education about HSAs, improved access and a better experience. More employees need to be empowered to use these accounts to improve their financial well-being and state of mind. It’s about finding ways to increase adoption first and then promoting increased saving second. The benefits technology platform used by employers and employees to manage these accounts is a critical component of their successful use. 

A change in approach may enfranchise more employees to save in HSAs. 

There is no denying that the triple tax advantage of HSAs is powerful. The upside potential is significant for those who can fund current costs out-of-pocket and use their HSA to save and invest. But the fact remains that deductibles are high, and even if they can fund some of their out-of-pocket costs, most employees may need to spend HSA dollars each year. That’s okay.

What’s not okay is how HSAs are currently marketed to the workforce. Characterizing HSAs as primarily retirement accounts may confuse employees who are already saving for retirement in a 401(k) or other employer-sponsored plans. Instead of messaging to the less than 10% who are maximizing their HSA, it makes sense to better educate the majority of employees who need support for real financial stress in the short and mid-term as well.

Better managing health care costs

Within today’s turbulent economic environment, financial wellness – including education and demystification – there’s an opportunity to serve employees better and empower them to understand and manage their benefits while enabling HR professionals’ means to control healthcare costs. After all, employees can’t be expected to save when they don’t know all the options available. 

With the growing Gen Z workforce expecting that employers provide financial wellness assistance, the time to best position one’s company to accommodate the current landscape and buffer for the future is now.

Brian Cosgray is the CEO & Co-Founder of Elevate.