HSAs Catching Root with Employers

April 26, 2004 (PLANSPONSOR.com) - Employers are apparently embracing Health Savings Accounts (HSA) with open arms.

A new survey by Mercer Human Resource Consulting found that nearly three-quarters of respondents say it is either very likely (19%) or somewhat likely (54%) they will offer a high-deductible health plan with an HSA by 2006. HSAs provide employees with individual tax-favored accounts that they can use for current medical expenses or as a way to save for future expenses.

Both large and small employers expressed interest in this type of plan. In fact, survey results suggest that very large employers (20,000 or more employees) and very small employers (10 to 49 workers) will be the first to offer them: 81% and 78%, respectively, are very or somewhat likely to do so within 24 months.

“We’re looking at a major market change unlike anything we’ve seen before,” Linda Havlin, leader of Mercer’s health care and group benefits consulting practice for the Midwest, said in a news release. “That so many employers – normally a cautious bunch – are ready to adopt a new form of health plan so quickly tells us three things. First, these employers are desperate for a solution to rising health benefit costs. Second, the concept of consumerism resonates well as a strategy for improving cost awareness and accountability. And third, employers view the HSA as a vehicle for helping employees to save for post-retirement medical needs in the face of declining employer-sponsored coverage.”

Just over a fifth of the employers surveyed (21%) say they have received inquiries about the accounts from employees, most often about whether the employer is going to feature one in upcoming benefits packages. More than two-fifths (42%) of very large employers have had inquiries.

When asked which of their employees would be most likely to participate in a high-deductible health plan and HSA, the majority of companies surveyed (61%) said their higher-paid staff would be first to step forward. Just 13% believed it would be those at the lower salary rungs. More than two-fifths (44%) believe their healthiest employees would be the most likely to participate (28% believe their least healthy employees would be most likely to participate).

Promoting Health Consumerism

For large employers (500 or more employees), the top two reasons to offer an HSA are to promote employee involvement and accountability in purchasing health care services (80%) and to reduce or control the organization’s spending on health care benefits (74%). Small employers (10 to 499 employees) picked the same top two, but in reverse order. Nearly half of large employers (48%) say that a likely motivation for offering an HSA would be to provide a savings vehicle for post-retirement medical coverage.

More than one-fourth of employers (26%) say they would offer the plan to provide a more affordable medical plan option for employees. Although many employers believe higher-paid employees will be the most likely to participate, only 5% of respondents say they would offer an HSA specifically to provide a tax shelter for highly compensated employees.

Survey respondents were asked to assume they had decided to offer a high-deductible plan with an HSA for 2005 and then to respond to two questions about plan design. The majority (61%) said they would set the individual deductible at the minimum, $1,000, while 17% said they would set it at $1,500 and 11% at $2,000. Only 10% would set it above $2,000.

Almost two-fifths (39%) said they would look to employees for all HSA account contributions. About a fourth (24%) said they would contribute $500, 17% said they would contribute $1,000, and 5% said they would contribute $1,500. Only 6% would contribute the maximum of $2,600.

Nearly 1,000 employers participated in Mercer’s Survey on Health Savings Accounts. The web-based survey was fielded in late March to respondents from the National Survey of Employer-Sponsored Health Plans. Eighty-four percent of the respondents have 500 or more employees.