The Latest HSA Trend: Automatic Enrollments
Dec 14, 2023
Health savings
accounts (HSAs) are a growing workplace trend, with more employees socking away
money into the savings accounts and more employers promoting them to workers as
a way to funnel away tax-free money for health care expenses.
Now
the latest momentum for these savings vehicles comes in the form of employers
automatically enrolling eligible employees into the account.
Nearly
half (46.7 percent) of organizations report they automatically enroll eligible
employees in an HSA, according to the Plan Sponsor Council
of America's (PSCA) 5th annual HSA survey of more than 500
employers. That's up by more than 30 percent in just two years.
Meanwhile,
the number of employers using a default or suggested savings rate to encourage
greater account funding has also increased (11 percent of respondents, up from
9 percent last year and 8 percent the year before).
The
rise in automatic enrollments is a significant finding, said Ann Brisk, senior
managing director of innovation and strategy at HSA Bank, and it symbolizes
that HSAs are becoming an increasingly popular tool to save funds. It also
implies that employers are getting more aggressive in pushing employees into
the savings vehicle—especially as the survey found that about half of employers
noted that getting employees to open an HSA after enrolling in a qualifying
health plan is a challenge.
"The
big jump in HSA auto-enrollments reflects the mainstream adoption of these
accounts, and we can expect this trend to continue as more employers look to
better support their employees' long-term financial future," Brisk said.
To
put the rate of automatic enrollment in HSAs into context, she said, automatic
enrollment in 401(k)s—which has been a common employer strategy for years—is
used in roughly 64 percent of plans, according to PSCA data.
Employers
leveraging "the long-standing success of automatic enrollment now so
ubiquitous in 401(k) plans" in HSAs generally works in employees' best
interest, said Jeff Scott, senior vice president of retirement at benefits
consultant NFP.
"It
works to nudge employees into something that for most, is in their best
interest now and in retirement as ultra-tax-efficient HSA balances grow,"
he said. "Employers are attempting to drive better health outcomes for
employees through cleverly crafted defaults—defaults that leverage the same
inertia that prevents employees from saving appropriate amounts in 401(k) plans
in the absence of automatic enrollment and escalation provisions."
Many
industry experts have long touted the HSA as a smart savings vehicle due to its
triple tax advantage: Contributions are made pretax, the money in the accounts
grows tax free, and withdrawals for qualified medical expenses are tax free.
Proponents
also say HSAs can promote better health care decisions and encourage workers to
seek more regular care.
"Many
consumers view health care as episodic and only seek out medical care when an
issue arises," Brisk said. "Given the financial incentives with HSAs,
the account encourages overall well-being and is a powerful tool in pushing
consumers to think about preventive care."
Brisk
clarified that employers can automatically enroll an employee in an HSA if they
select a high-deductible health plan (HDHP) and said those employers
"absolutely should."
"Most
employers offer HSA contributions for employees who select an HDHP, and
auto-enrollments ensure that employees have the ability to take advantage of
those employer contributions," she said.
High Health Care Costs
The
big jump in automatic HSA enrollment is likely primarily due to employers
understanding the reality of high health care costs and their effect on
employees, Scott said.
"I
think the trend starts with employers facing the reality of how health care
costs continually outpace other human capital costs in the workplace and the
knowledge that behavioral finance nudges can led to better health, lower health
costs and wealth creation for employees in the future," he said.
Health
care costs inflated at a rate of approximately 4.5 percent each year from 1982-2022,
according to the BLS's Consumer Price Index (CPI), which is significantly
higher than overall inflation of 2.9 percent over the same time frame.
Meanwhile, the 2023 HSA Bank Health & Wealth Index found that a third of
workers were unsure if they could afford health care costs in the near term or
in retirement.
"From
a financial perspective, organizational margins can only compress so much
before it impacts other areas of business, including capital spending and
investing for growth. And with the average age of the skilled workforce
growing, so too are projected employer-paid health care costs," Scott
said. "Employers need productive and healthy employees. They also need
timely turnover as employees age. HDHPs with HSAs are strategic vehicles to
help create more employee health accountability today and financial well-being
for tomorrow."
Brisk
agreed. "As HSAs become more popular, employers and consumers alike are
realizing the power of HSAs to take control of their health care costs and
prepare for future medical expenses."
Other Momentum in HSAs
The
big jump in automatic HSA enrollment also comes amid other momentum for the
savings vehicle.
The
PSCA survey also found that employees are putting more money into their
accounts: Nearly 90 percent of eligible employees had an HSA in 2022, with
about 8 percent more making contributions compared with the previous year.
Meanwhile,
a significant three-quarters of employers make contributions to HSAs; most
provide a set amount per coverage level.
"Concern
for employees being able to fund their HSAs is growing among employers as the
economy continues to struggle with higher costs of living, and many are putting
supports in place to help," said Hattie Greenan, director of research and
communications at PSCA. "Employers see the benefits of HSAs to help
employees cover health care expenses now and in the future and are structuring
their programs to help employees do so."
Brisk
said employer contributions are an important way for employees to get excited
about HSAs.
"[They]
are the single best way to get more employees engaged with their HSA and can
promote greater interest in their financial future," she said. "It's
encouraging to see so many employers contributing to HSAs and, if budgets
allow, they should consider matching employee contributions."
More
employers (40 percent) also are framing the accounts as part of a holistic
retirement savings approach and not just a spending account for current health
care expenses. That number is up from 27 percent two years ago.
All
of these employer actions can have a big impact on helping to boost employees'
understanding, excitement and utilization of HSAs, Brisk said, adding,
"Simple acts can continue to engage the workforce while also providing
tangible solutions to future medical expenses."
Source: SHRM