Becky Seefeldt is VP of Strategy for Benefit Resource with 20 years dedicated to the education and advancement of consumer-driven benefits.
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As employers evaluate their benefits offerings, it is natural to complete a financial analysis. While this is a great first step, it is also important to understand that your employees are people. There is not a one-size-fits-all approach, and multiple factors come into play.
This is particularly true when it comes to offering out-of-pocket healthcare financial tools, including health savings accounts and flexible spending accounts. Through my experience helping lead a company that administers HSA and FSA benefits to employers, I've seen how important it is that leaders understand what moments matter most to employees for a more holistic approach to benefits.
How can you understand what matters to your employees?
It is important that you dive into the data and characteristics of your workers. Employees are in different places in life and have different experiences that influence the decisions and needs they might have.
Start with understanding your employees' generational makeup.
While there are up to five generations in the workforce, Generation-X and Millennials make up 68% of the workforce, according to a 2018 article by Pew Research Center. With such a high rate of participation in the workforce, it is not hard to believe that they are also driving benefit trends and utilization of account-based plans, including FSAs and HSAs.
An analysis by my company found that nearly one in two FSAs are held by Gen-X, with the average age of a participant at 47. By contrast, nearly one in two HSAs are held by Millennials, with an average age of a participant at 42. From my experience, FSAs tend to be favored by older generations, while younger generations seem to favor HSAs.
Consider how account features and utilization come into play.
It is easy to think that FSAs and HSAs are interchangeable. In some ways, they can be, but there are some distinct differences.
Flexible Spending Accounts
FSAs pay for eligible medical expenses incurred during a plan year. They require an employee to make an election prior to the start of the plan year. Then, on the first day of the plan year, the full election is made available to the employee. Throughout the year, the employee can use the funds in the FSA, and at the end of the year, there are limited options for what can happen to the funds that remain, which may include rollover up to a defined limit.
Health Savings Accounts
HSAs are designed to pay for eligible expenses both near-term and in the future. Funds are contributed to the HSA on a pre-tax basis, grow tax-deferred and remain tax-free when used for eligible medical expenses. Funds are owned by the participant, roll over from year-to-year and are portable if employment changes.
In my experience, while FSA behaviors tend to be predictable over the course of the year, HSA usage tends to vary. HSA participants might be categorized as spenders, savers, investors or inactive contributors.
Spenders consist of individuals who are actively using their HSA on a regular basis to pay for necessary and routine medical expenses. A saver is likely saving most of their HSA funds and reserving HSA funds for large or future anticipated medical expenses. Investors tend to view their HSA as a long-term financial planning tool, similar to a 401(k). Finally, the ineligible contributors are individuals who are no longer eligible to contribute to the HSA but have remaining funds they might use for current or future medical expenses.
Each of these groupings will view and leverage their HSA differently. As a result, HSAs require a unique understanding of where the participant is at in their life.
What does all of this mean to employers?
Consider your message and positioning. Employees come with prior experiences and preferences. Try to meet them where they are at through your message and positioning of benefits.
1. Offer employees account choice.
While an HSA can only be offered to employees in a qualifying HDHP, there are a variety of reasons employees might want (or need) the choice to enroll in an FSA instead of an HSA. By giving employees a choice, you separate the health plan decision from the account-based plan decision. This allows employees to choose the best options for their unique situation.
This can result in increased enrollment in the HDHP and premium savings for both employees and employers. If the employer is funding the HSA, they can alternatively fund a health reimbursement account for employees who select an FSA.
2. Permit employees to take advantage of multiple accounts.
For years, there has been a stigma that employees should be given one choice or one account. However, employers have the opportunity to maximize the benefit to employees by offering a multi-account strategy. There are certain rules for how HSAs, FSAs and HRAs are combined that maximize the benefits for employers and employees. In my experience, a common option includes a limited FSA for dental and vision expenses and a post-deductible HRA to limit large out-of-pocket exposure.
Help employees identify the choices that make the most sense for them. When you align organizational needs with employees’ needs, you have a great recipe for retention and recruitment.
3. Be prepared to highlight the benefits (and constraints) of each option.
Employees often view FSAs, HSAs and HRAs interchangeably and do not understand the traits that make one a better fit. Short, concise descriptions of each account can aid in the process. A quick series of questions can also be an easy way to guide employees to the right option.
4. Avoid passive or auto-enrollment approaches.
Employers face the constant balance between making things easy for employees and truly helping them select the benefits that are right for their situation. Passive or auto-enrollment occurs when an employee either defaults to a prior plan choice or is automatically enrolled in a default choice selected by the employer. While this may reduce communication needs during open enrollment, it often results in headaches and challenges for both the employer and employee during the plan year.
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