2022 HSA Conference: Creating the Optimal Plan Design

Plan sponsors have several major items to consider for the optimal health savings account design.

Plan sponsors designing an optimal health savings account for employees will need to align the goals of the framework with their strategy for helping workers accumulate sufficient retirement savings.

According to industry experts at the 2022 HSA Conference, when plan sponsors are designing an HSA program, they must consider the risks and benefits of auto-enrollment for employees who have high-deductible health plans, and the questions of whether to include an employer contribution to workers’ HSAs and whether to provide account holders the option to invest contributions for long-term growth.

Participants enrolled in high-deductible health plans and HSAs are eligible to invest their HSA assets. Those assets are triple-tax advantaged, as they are not taxed as income, on any investments earnings or at withdrawal. Employers that want to assist workers with investment products to cover long-term health care expenses must balance the value of an HSA benefit with the impacts to participants’ retirement savings and to the employer’s total spending on workplace benefits, said Andrew Fondow, vice president, health solutions at AON.

As with 401(k) accounts, employers can contribute to workers’ HSA accounts. But plan sponsors must give careful thought to making employer contributions to HSAs, because “employers only have so many dollars to go around,” Fondow said.

He explained that plan sponsors must closely examine how an HSA contribution will affect the company’s bottom line for total health care benefit spending.

“What we tend to find is that if we’re not careful, and [employers] start to contribute a lot, typically what we see is premiums towards these plans are less than our traditional PPO [Preferred Provider Organization], copay plans,” Fondow said. “Then when they add in employer funding, all of a sudden we can get a little bit off as far as the value of the plan goes—the employer is contributing so much more towards that HSA through premium contributions to lessen that for the employee, as well as contributions into the health savings account, that they can start to have some negative impacts on how that plan is priced in the future.”

He added that it’s important to calculate “to see [if] it makes sense for us actuarial-value-wise to contribute dollars towards that plan, or are we going to skew this and actually hurt our health plan toward the future?”

As employers do more in the HSA space and are engaged with workers’ long-term health, plan sponsors must think through auto-enrollment for HSA-eligible workers, explained Steve Durso, associate director of benefits accounts at Willis Towers Watson. Plan sponsors must balance the benefits of auto-enrollment, acknowledging “that some people sign up for the high-deductible health plan but do not open an HSA,” with the drawbacks, he said.

If the plan sponsor does auto-enroll employees into the HSA, there may be many accounts opened that aren’t used, Durso explained. 

“Sometimes employers are concerned about being charged monthly maintenance fees for accounts that may have no funds in them, and your administrator certainly may do that,” he said. “You may be charged for sending out debit cards to them. There’s a cost element that should be evaluated when making the decision on whether you want to do auto-enrollment.”

According to the Plan Sponsor Council of America 2021 HSA survey, 62% of employers with less than 50 employees auto-enroll HSAs, compared to 25% for employers with 5000 or more employees, Durso noted.   

“A lot of employers really do want employees to have to take some action rather than just giving them free money,” he said. “Wellness programs are very popular ways to seed HSAs by making employees actually have to do something, so you’re engaging them, and it contributes to their health as well.”

Additionally, “an employer does not have the total picture for their employees’ HSA eligibility,” Durso said.

For example, the plan sponsor would not know if the HSA account holder had “a spouse who just enrolled in a full-purpose health care flexible spending account, which is going to make the employee disqualified for HSA contributions,” he said. “If an employer were to do auto-enrollment, there’s always the issue where you’re enrolling some people that really are not eligible due to something that you’re not aware of.”

The employer would have to work on taking back the funds and ensuring there were no negative tax consequences in that scenario, Durso added.

Durso also noted that according to the PSCA 2021 HSA study, 84% of plan sponsors offer HSA account investments. This is not the place to be an outlier among peers, he said. 

“If you’re an employer and you’re not offering investments, then your employees really will not be happy about that, especially if they’ve come from an employer that did offer investments,” Durso explained. “It’s part of just making your employees happy, because the people that do engage with investments can really build large balances over time.”