Why Doesn't Every Employee Enroll in a Health Savings Account Program?

Why Doesn't Every Employee Enroll in a Health Savings Account Program?

Fewer than half of employees who are offered an HSA-qualified plan enroll. Why?

The Plan Sponsor Council of America recently issued its 2021 HSA Survey - an annual deep dive into trends in the adoption and performance of Health Savings Account programs. The report provides statistical information along a number of dimensions of these accounts. Let's focus on one measurement today: enrollment in HSA-qualified medical coverage.

The Raw Numbers

According to the survey, adoption is greatest at companies with employee populations of between 50 and 199 workers. In roughly half of all companies, the HSA-qualified plan enrolls more workers than other plans. That percentage declines at larger companies, though the split is roughly even at companies with 5,000 or more workers. Overall, among all companies with 50 or more employees surveyed, only 38% report that an HSA-qualified plan enrolls the most employees.

The natural question is why.

Is These Numbers Good or Bad?

A relevant question is whether that 38% figure is an endorsement or indictment of Health Savings Account programs. It could be either. We don't know how many plans are offered, how long the Health Savings Account program has been offered, the relative pricing of the coverage options, the net out-of-pocket costs of each plan offered, the work-force demographics (age, race, sex, and household income all affect the need for care and perceptions about the value of particular coverage), and the dynamics of the open-enrollment process.

Demographics may or may not influence the measured results. If the demographic characteristics of companies don't vary substantially with group size, they don't explain the variation among companies according to size:

  • 50 - 199: HSA-qualified has the most enrollment in 50% of companies. Another plan was more popular in 40% of cases (the other 10% were "about the same" or "I don't know").
  • 200 - 999: 37% HSA-qualified was most popular, 48% another plan.
  • 1,000 - 4,999: 36% HSA-qualified most popular, 39% another plan.
  • 5000 +: 48% HSA-qualified most popular, 48% another plan.
  • Overall: 38% HSA-qualified most popular, 46% another plan.

What Drives Adoption?

What factors are most important in building enrollment in a Health Savings Account plan versus another coverage option?

Education. Ideally, employees are educated about the power of a Health Savings Account prior to open enrollment. That way, they understand the benefits of this financial opportunity before they're hit with multiple decisions around medical, dental, and vision coverage, as well as life insurance, short- and long-term coverage, voluntary/supplemental coverage, and a Flexible Spending Arrangement.

Non-financial positioning. But even the best education effort falls short of the product isn't attractive to consumers. There is much that an employer can do here. The first step is to refer to the medical coverage as an HSA-qualified plan rather than a High-Deductible Health Plan. Just imagine how many fewer SUVs an auto manufacturer would sell if they were labeled the Gas Guzzler rather than a focus on safety, carrying capacity, comfort, and overall ride. Another important step: Frame the Health Savings Account discussion as part of financial education (perhaps incorporating information about the company-sponsored retirement plan as well). A Health Savings Account really isn't a health account, despite its name, and it gets lost too easily among the many options during open enrollment. It's a financial account (albeit one closely tied to medical coverage) and should be presented to employees in that context.

Financial positioning: Rational consumers evaluate medical coverage based on total cost. They look at these important variables:

  1. The price they pay for coverage (through payroll deductions for premiums),
  2. their total out-of-pocket exposure,
  3. factors that offset their out-of-pocket exposure (an employer contribution to a Health Savings Account, an employer-funded Health Reimbursement Arrangement, employee tax savings for elections to a Health FSA or contributions to a Health Savings Account), and
  4. their projected financial exposure (reflecting the net out-of-pocket costs and their likelihood of incurring claims).

Employers vary dramatically in their positioning. Some offer a Health Savings Account program as another option, with no real interest in or strategy for encouraging enrollment. Others use the levers reflected in variables one through three above to create a robust offering that leaves most or all employees better off at the end of the plan year, regardless of utilization, when they enroll in the Health Savings Account program.

Tools: Even a well-positioned product may fail if consumers can't process the necessary information. That's why it's critical that employers offer employees a tool that they can use to evaluate their unique situations and measure their tolerance for risk. Ideally, such a tool includes a questionnaire that employees complete to receive a customized plan for all appropriate coverages (medical, dental, vision, voluntary/supplement, Health FSA, Health Savings Account, etc.). At a minimum, it must project an employee's total costs of medical care (premiums, cost-sharing responsibility, likely cost-sharing incurred, and tax savings).

Structure of open enrollment: The final important piece is a vibrant open-enrollment process. It's nice when the process is fun and includes raffles and other activities that encourage employees to attend in-person or virtual educational presentations. But the most important element is an active (versus a passive) enrollment. In this design, employees' current benefits options don't carry over into the new benefits year. Rather, they must actively enroll in each benefit every year. That way, they're forced to act. They may not spend enough time studying their options, but at least they'll have to engage with the process. That's the most that a typical employer can do. The level of engagement is up to the employee. But it's likely that, absent the need for any engagement, most workers will default to their current choices for the new plan year.

The Bottom Line

A survey reflecting the percentage of companies at which the top medical option (measured by enrollment) is the HSA-qualified plan doesn't tell us much in terms of actionable information, any more than a change in the S&P 500 index tells us much about average employee returns in employer-sponsored retirement accounts (or the general inflation rate tells us about the percentage increase in the price of a three-year old pre-owned sedan). Each employer designs a specific program, and each employee brings different levels of engagement, financial priorities, fears, and goals to the selection process. And it may not be appropriate for the company to position the Health Savings Account program as the optimal choice.

But the figures represent an interesting snapshot in time for the industry as a whole. They certainly tell us that Health Savings Account programs have made dramatic gains in less than two decades of existence. And they point to opportunities for future growth.

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William G. (Bill) Stuart

Nationally recognized expert on reimbursement account strategy and compliance, particularly Health Savings Accounts and ICHRAs 🔹Writer🔹Author🔹Speaker🔹Educator🔹Strategist

2y

Some good information from a trusted source on the share of companies whose employees enroll in HSA-qualified coverage. The data don't tell us a lot, but the article includes some strategies to increase adoption if that's the company's goal.

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