Alternatives to Cutting HSA Contributions

Considerations for plan sponsors that need to cut costs but would rather avoid taking away benefits.

Employers contemplating whether to cut health savings account (HSA) contributions to help with their financial constraints should understand the implications of doing so, experts warn.

Now more than ever, an HSA is a key component for employees to manage their health costs, explains Alison Moore, vice president of marketing at HealthSavings. For example, participants can pay for qualified health care expenses via HSAs, a benefit that’s even more important given the amount individuals are incurring on medical expenses. Additionally, all workers can apply telehealth service payments to their accounts, and if employees are laid off or furloughed, they may use HSA funds to pay COBRA premiums and other health insurance payments, she says.

“We asked brokers and employers what concerns most of their employees and clients have, and 54% answered they are concerned for the health of themselves and their family, which shows the immediacy of the situation,” Moore adds.

Currently, experts say there is little data to suggest employers are halting contributions to their HSAs. Kevin Robertson, senior vice president at HSA Bank, says there’s no indication that employers have stopped their HSA contributions, adding that he guesses more employers will cut or reduce matches in defined contribution (DC) plans before chopping HSA contributions. Because employers are contributing finite amounts to an HSA rather than a dollar-to-dollar match with a DC plan, cutting the latter lowers costs more.

In fact, Moore says at least one of her clients is decreasing its 401(k) matches to avoid touching HSA contributions. She says the client is considering even elevating contributions to HSAs. “They believe the HSA benefit offers more immediate relief for the current challenges,” Moore says.

Employers who’d rather avoid cutting contributions altogether but are strained to relieve as many costs as possible can add matches to their HSAs, Robertson suggests. Employers can match dollar-to-dollar up to a certain amount and will only make these contributions if the employee is participating, he says. Doing so can save employers on other costs, too because contributions to HSAs are not subject to Federal Insurance Contributions Act (FICA) and their unemployment contribution,” Robertson notes.

Both Robertson and Moore recommend employers avoid touching the benefits structure. Implementing reduced pay is less than ideal for employers and employees, but it may be a better alternative when compared with cutting HSA contributions, Robertson says. Workers are already living in anxiety due to the current health crisis and the potential for job loss amid the economic recession. Chopping benefits is only going to add another layer of fear, he rationalizes. “It’s just going to add additional stress on the employees, and it could potentially impact their well-being. That impact will be felt long after the recovery,” he says.

If employers go down the path of cutting benefits, whether an HSA or 401(k) match, they should consider evaluating comparability and nondiscrimination testing, Robertson says. Companies that reduce or eliminate matches can run the risk of failing nondiscrimination testing. “Make sure you’re looking at this and are not accidentally running afoul on the rules,” he says.