The indexed Health Savings Account (HSA) and Health Reimbursement Arrangements (HRA) numbers are out –”triggering” the start of 2024 annual enrollment discussions and planning! It is time for employers with a calendar year plan year to begin to “proactively” prepare for annual enrollment.
As reported by SHRM, annual HSA contribution limits for 2024 are increasing in one of the biggest jumps in recent years, the IRS announced May 16. “The new limits are a significant jump, but they are not surprising in the context of months and months of rising inflation, which has contributed to growing costs for employees, said Kevin Robertson, senior vice president and chief revenue officer at HSA Bank.”
“For employers looking for ways to capture their employees’ attention on the advantages of HSAs, this is ‘good news to use’ to help promote healthy behavior and engagement with their employees,” Robertson recommends. “This can be helpful in helping employees understand how to address not only their current health care spending but also, and more importantly, understand the impact HSAs can have on their long-term retirement preparation.”
There are good reasons why the Wall Street Journal “kicked-off”annual enrollment in its May 22, 2023 edition with a two-page article on choosing health coverage. Further, the May/June issue of Benefits Magazine suggested key action steps to prepare for annual enrollment.
Most Employers Continue to Deny Employees Access to Health Savings Accounts
HSAs became available 20 years ago. They have been proven valuable to tens of millions of American workers. Yet, more than three fourths of employers who offer a health plan don’t provide employees access to HSA-capable coverage.
Since 2015, almost every employer who offers health coverage has taken action to ensure it is “affordable, minimum essential coverage, of minimum value” – so that the employer doesn’t have to pay Health Reform’s penalty tax. Those who have not offered a HSA-capable option for the past 20 years, since HSAs were authorized by Congress, have effectively denied their workers access to America’s most valuable tax preference.
So, wait no longer! It is past time to introduce HSA concepts! Aequum benefit experts can help. For example, we recommend you consider adding HSA-capable coverage effective December 1, 2023 (no, don’t wait until January 1, 2024)! (Hint: Ask us why December 1st?)
Health Savings Accounts as a Health & Wealth Strategy
As a proactive approach to counter inflationary trends, plan sponsors should focus on helping participants avoid over-insurance and build savings. Leveraging HSAs as part of a ’health and wealth’ rewards strategy can optimize both savings and financial preparedness. Capable of quadruple duty, HSAs provide tax-preferred benefits to cover out-of-pocket medical costs in current and future years, Medicare premiums, retirement income and survivor benefits.
HSAs offer a unique value proposition – it is the benefit that receives America’s most valuable tax preference. It is the benefit that offers the greatest utility. HSA monies, including any employer contributions, are always “vested,” never forfeited. HSA contributions receive more favorable tax treatment than contributions to a 401k. And, unlike a Health Flexible Spending Account (FSA), HSA monies can be invested and accrue earnings tax-deferred. Participants receive HSA monies tax free when used to pay eligible medical, dental, vision, hearing and long-term care (LTC) expenses and certain medical, Medicare and LTC premiums.
HSA and 401k Are Better Together
Plan participants who save in both an HSA and a 401k can achieve a superior, synergistic outcome, one that is dramatically better than limiting participation to only one of the two accounts. Superior HSA and 401k designs avoid commission and omission errors. HSA-capable coverage complements a 401k plan, in both the accumulation and decumulation phases.
A participant who carefully allocates savings between the two benefits can shape how each is used, today and tomorrow. Those who do will spend less out of pocket, once adjusted for taxes, and maximize the net after-tax value achieved from savings.
Read more about this savings strategy in our latest blog.
Also, check out 401ks and HSAs, Better Together, a three-part strategy series authored by ERISA/Employee Benefits compliance and planning attorney Jack Towarnicky, a member of aequum, LLC and Of Counsel for Koehler Fitzgerald, LLC. This series, with additional article by Jack published by 401(k) Specialist, can be read by clicking here.
What Others Recommend
In the Benefits Magazine article, Kim Buckey of Optavise suggested employers start by evaluating last year’s annual enrollment, assembling the right team (internal and external), focusing on health literacy, communicating early and often with employees and adding features/improving benefits by targeting specific groups and needs (e.g., fertility, gender reassignment, LGBTQ+ individuals, etc.).
For comparison, the WSJ article focused on adding and promoting HSA-capable coverage options as “The Healthcare Plan Most People Should Buy—and Why They Don’t”. The Journal article also identified some common enrollment mistakes: (1) Succumbing to inertia and keeping the plan you already have, (2) Failing to accurately forecast health spending, and (3) Allowing bias to creep into decision-making such as the availability heuristic (possible, but highly unlikely “nasty medical conditions”) which prompts some who live paycheck to paycheck or who are in debt to overinsure. aequum agrees with the WSJ article. We believe plan sponsors should act today to reconsider their passive enrollment strategies in favor of a proactive ones. A passive enrollment process leaves existing elections in place for the coming year – regardless of new options offered, increases in employee contributions and any changes to existing coverage. A passive enrollment process intentionally or inadvertently encourages workers to continue in their existing health coverage – instead of reconsidering all options. Employers who offer a choice of coverage options may be able to improve engagement by replacing a passive enrollment approach with a proactive enrollment strategy. And employers may be able to reduce spend for those who reconsider all coverage choices and opt to enroll in a spouse’s employer’s plan.
American Workers Remain Financially Fragile
We continue to experience a period of rapid inflation which may prompt renewed and higher levels of healthcare cost inflation. This compounds the challenges a most financially fragile Americans already face – those unprepared for regular household expenses, let alone expected and unexpected out-of-pocket medical expenses. End-of-year renewals may see significant increases in the cost of coverage (premiums, contributions) and/or higher point of purchase cost sharing (increased deductibles, copayments, out of pocket expense maximums).