Author: Jack Towarnicky, Member, aequum

I was recently asked for advice by someone who was adding HSA-capable coverage for the first time. Here is some of my response:

I have a number of plan design and communication suggestions based on my 20+ years of experience with HSA capable coverage. Each situation is different. So, you should always discuss with tax and legal counsel before deciding on a course of action.

Are you adding the HSA as an option alongside an existing traditional PPO with a lower deductible? If so, your enrollment in the HSA-capable coverage option may suffer unless you “level the playing field.”

Some suggestions:

• Announce TWO HSA coverage options that are exactly the same no later than September 1, 2025, where the individual can enroll in either option during annual enrollment, say the first week or two of November 2025:
  • The first HSA-capable coverage option for those who wish you had offered HSA-capable coverage earlier:
    • A 13-month, HSA-capable coverage option, effective December 1, 2025, with a deductible of $1,860/$3,720, coupled with
    • A low-no interest compensation loan program for non-highly compensated employees per IRC 7872 in the amount of $1,860, so that workers could elect that compensation loan as a means to fully fund their HSA for 2025, where collection/repayment would occur during calendar year 2026, and
  • The second, HSA-capable coverage option, is for those who want to enroll in the HSA-capable coverage effective January 1st, 2026, with the same nominal dollar amount of deductible, $1,860/$3,720. No comp loan would be provided.

For both HSA-capable coverage options:

• Ensure that the difference in total premium/cost (compared to the Traditional PPO) reflects only the difference in coverage.
• Do not name the Traditional PPO nor the HSA-capable coverage options by the size of the deductible – that focuses too much attention on deductibles, which are just one component of plan design.
• If you currently offer a Health FSA, remember to offer both a general and a limited FSA, and to amend the current general Health FSA plan so that current enrollment in the HSA-capable coverage doesn’t render the individual ineligible for HSA contributions.
• If you planned to increase the cost of the Traditional PPO, concentrate that increase / focus attention on an increase to employee contributions.
• In your Summary of Benefits and Coverage (SBC) communications:
  • Remember to expressly confirm that the company financial support is the same for both options.
  • Highlight the difference in employee contributions by placing a comparison at the top of the page.
  • Next, compare the difference in deductibles with the maximum employer HSA contribution (see default below), and
  • In each of your coverage examples, remember to show, immediately after the difference in point of purchase cost sharing, the difference in employee contributions.
• While you need not increase the company contribution from 2025 to 2026, ensure that you do not reduce the nominal amount of company contributions, for any option, and confirm that the company contribution has not been reduced in your communications.
• Confirm that the company contribution is the same for both options, any difference between the Traditional PPO and the HSA-capable coverage option(s), where less, should be contributed, as a company matching contribution, to the HSA.
• Ensure that the out-of-pocket expense maximums are the same for all options.
• Maximize the 100% pre-deductible coverage in the HSA capable option, preventive services, some Rx, (even direct primary care if you are thinking about that as provided under the One Big Beautiful Bill).
• In specific communications, you should highlight the fact that de-identified claims experience confirms that most workers should enroll in the HSA-capable coverage, as data show most workers won’t meet the deductible each year:
  • In year 1, identify the employee claims experience for the prior plan year (here, 2024), and report it to participants:
    • First, identify the total claims dollar amount, plus administrative expenses, and confirm the portion of the cost funded by employee contributions, and the portion funded by employer contributions, so workers don’t think they paid for the full cost or even the majority of the cost.
    • Second, report in deciles (10% increments), the number of employees in each decile, in “Letterman-style” order (lowest to highest), based on actual claims experience, where those who had no claims are at the top and those with the most expense are in the bottom decile. Only show the number of employees in each decile. The only other numbers to show are the median claim amount on the chart, and the claim amount where the Traditional PPO and the HSA-capable coverage option(s) would be a “push” – where someone who has that amount of claims expense will receive the same value (benefits paid less employee contributions, without adjusting for tax preferences). Use this communication to “nudge” workers who are above that line to enroll in the HSA-capable option.
  • In year 2 repeat the year 1 communication, using 2025 claims experience, and
  • In year 3 repeat the communication and add a highlight, using 2026 experience, to identify how many workers made the right choice, and how many did not – confirming the number of those who could have saved money, and how much they could have saved in the aggregate and on average (separate data by coverage option).
• Change from a passive to an active annual enrollment process:
  • Either require everyone to make an affirmative election of coverage (no coverage if no election is made), or
  • Default everyone to the new HSA option.
  • Note: For anyone who fails to make a coverage election during annual enrollment cafeteria plan process, you might consider allowing those who need coverage, to enroll in January 2026 for HSA capable coverage (same option), but, as a “late enrollment/change in status enrollment”, where you amend your health plan to add an 11 month HSA-capable coverage option effective February 1st 2026, where the employee contribution is the same, but on an after-tax basis, and where there is no employer contribution to the HSA.
• Make sure you check with anyone who will be 64 or older at any time during 2026 to confirm to them the Medicare rules which disqualify them from making HSA contributions where they already have or plan to commence Social Security income benefits.
• Select an HSA vendor that:
  • Does not require the first $1,000 be contributed and invested in the capital preservation investment,
  • Offers a suite of low cost, index fund investments,
  • Will confirm that HSA assets are good today and tomorrow,
  • Confirms that the HSA is not only America’s benefit offering the most valuable tax preference, but, that HSAs are America’s most utilitarian benefit program,
  • Helps you create/conduct a mid-year HSA contribution escalation campaign – remember, HSA contributions can be changed prospectively any month, and
  • Has a formal “shoebox” process for health claims, to maximize earnings on HSA assets.
• Employer HSA contributions:
  • For first time enrollees in HSA capable coverage, have a default employer contribution of $1 to open the HSA on the first day of HSA-capable coverage, to get the HSA claims clock running.
  • For all enrollees in HSA capable coverage, have an additional employer contribution as a match that will be sufficient, when combined with employee contributions, to fund the HSA-capable coverage deductible. Consider using the same match formula that you use in your retirement savings plan (401k, 403b).

For example, if the employer matches 50% of the first 6% of pay, use that same process for the HSA company contribution (in addition to the one-time $1 company contribution to open the account). So, if the HSA-capable deductible is $1,860, if your match is 50%, then the match would be calculated as 50% of the employee’s contribution up to $1,240 – $1,220 employee, $620 employer, $1,860 total.

Finally, if you are transitioning, over time, to full replacement HSA-capable coverage, say offering only one or two HSA-capable coverage options (which most employers should), in your initial announcement, you will want to reset expectations, and highlight that goal and confirm when the transition is expected to be completed.

I let the person know that there is much more to consider. So, feel free to send me your questions, I will be happy to discuss. Please reach me at: jtowarnicky@Koehler.law.

For additional perspective, please view my related article here: https://www.koehler.law/wp-content/uploads/sites/57/2021/05/Towarnicky-Maximum-Utility-Your-HSA-Can-Do-Quadruple-Duty-2nd-Qtr-Benefits-Quarterly-2021.pdf.