Saving the Bottom Line: How HSAs are Driving Benefit Strategy Reform and Delivering Savings
This is a special opportunity to listen to a replay of an informative session from the 37th Annual ISCEBS Employee Benefits Symposium in Boston, MA.
Presented by ConnectYourCare’s Jamie Janvier, in this session you’ll learn about:
- Health savings industry growth trends
- Overcoming enrollment barriers
- Funding HSA acceleration programs
- HSA “full replacement” solutions
Hello and welcome to today’s event, “Saving the Bottom Line: How HSAs are Driving Benefit Strategy Reform and Delivering Real Savings.” My name is Jamie Janvier, program manager with ConnectYourCare. And I’m very excited to be here today. This is such a great group, and I look forward to promoting further dialogue on a trending topic that definitely brings a unique perspective to benefits plan designs in modern times.
While saving the bottom line is a broad topic and it means many different things to many different people, today specifically, we’ll be taking a deeper dive into health savings accounts and their impact on employer bottom line savings as well as overall employee satisfaction. This is a topic that is very near and dear to me and very passionate about. And I hope I can share with you some encouraging thoughts and ideas as well as some best practices that help set the table for win-win scenarios amid performed efforts and as the healthcare landscape continues to evolve.
Okay. From an agenda perspective, we’re gonna first start with some data and trends that showcase the growth of the HSA as it moves closer to the center stage in plan design decision-making. We’re gonna look at some national survey data as well as some statistical elements that we’ve derived from our clients’ own experience with HSA plans. From there, we will jump into full replacement strategy, moving away from traditional plans such as HMO and PPO to a high deductible health plan that is paired with an HSA as a default option.
And with that comes some significant hurdles to consider. That being access to the contributions. We will then tackle the topic by keying in on funding acceleration options and effective communications that can help take care of some of the scare when it comes to those high deductible conversations with employees and just generally overall promote a greater awareness and understanding of full replacement HSA benefits from both the employer and employee vantage points.
We really look forward to sharing some industry innovations today that you may not be aware of specifically when it comes to accelerated funding contributions. Okay. So let’s go ahead and open up things with the healthcare cost challenge. As we all are very aware, whether it’s from the experience we see firsthand day in and day out or as we’re reminded by media reporting, health insurance premiums continue to rise year over year. Definitely no secret there.
But what is interesting here is when we take everything in consideration, the premiums are, in fact, rising at a faster pace than both worker earnings and inflation. So this chart here does a very nice job of showing that disparity over a 17-year time frame. If you look towards the top, there’s a blue line, which reflects the premium growth while that yellow line towards the bottom there actually shows workers’ actual compensation. What we call in-between there, that delta, is considered the pain gap. What’s also interesting here is the very top line, which is the gray line. And that reflects workers’ contributions to health insurance premiums.
So if we go back and look at 2006, for example, you’re gonna see that the worker share of premiums was pretty closely matching the health insurance premium allocation, which again is that blue line right under the gray line. So what’s happened over time is that these lines have diverged as a result of employer-employee cost sharing just as employers try to help offset the overall higher cost of healthcare. This really is a great illustration that speaks to employers working to continuously reevaluate benefit strategies and just implement overall cost saving strategies, namely being the cost shifting to employees and as well as that inevitable unfortunate decision to have to cut benefits in certain areas. And, finally, driving enrollment towards lower cost plan designs, which is what we will be focusing on strategically today.
Okay. So let’s look at this next slide here. The challenges being presented to employers and their employees have definitely shined a spotlight on high deductible health plans as particularly attractive option here with premiums typically being 10% lower than traditional plans. So what we’re looking at here is the employee portion of the premium in the green bars followed by the employer portion in gray across the various plan options here. So towards the bottom there, you’re gonna see the high deductible health plan, the premium cost being 6,024 on average for the single plan, and 17,581 for the family plan.
Now, if you look across the whole spectrum here, it doesn’t look like significant savings. Those bars are pretty close in size across all plans, that being the traditional plans that the HDHP is being compared to. But if you think about it this way, if you were to apply these 10% premium savings to each and every participant that opts into a high deductible health plan in your company, those savings really add up. You can certainly do the math there.
Okay, moving on. The steady rise of high deductible health plans, no surprise. This type of plan is increasing in popularity as depicted here in this chart. So what we’re looking here is the high deductible health plan is denoted in the orange bar to the right of the scale here. And, again, we’re looking at plan years from 2006 up into 2017. And we are seeing that, overall, the total population of the privately insured marketplace, about one-third of all enrolled participants are moving to that high deductible health plan option. So that translates to employers using the high deductible health plan as a meaningful vehicle to really help control the rising healthcare costs as we alluded to earlier.
If you look back closer to 2006, you’re gonna see that the cost, or the enrollments rather were very closely matched. So the high deductible health plan is really the only plan option that has grown over the spectrum of time. You could argue that the one point percentage dip between 2016 and 2018, I’m sorry, 2016 and 2017 rather, from 29% to 28%. But statistics are showing that this is a very hold steady with future growth anticipated. So really no concerns there. We will get into that anticipated growth here shortly as it pertains to those cost control and reform strategies.
The other plans here that being conventional HMO, PPO, and POS have either remained static or contracted. So just looking at 2017 in perspective here, HMOs are at a 14% enrollment rate. PPOs are still holding strong with 48% and the POS is at 10%. And, again, we are seeing that growth in the high deductible health plan with at least one-third of all enrollees electing for that plan.
Okay. Now we are gonna take a look specifically at the account types that help prop up the high deductible health plan and their enrollment rates. There are two types here. One is the HRA, the health reimbursement arrangement, which is illustrated here in orange and on the bottom portion of the line stack. The other, of course, is the health savings account, HSA, shown in green and on the top of the line stack.
So looking at 2017, we’re seeing a breakdown of a 9% overall HRA enrollment rate and a 19% HSA enrollment rate. That, of course, adds up to that 28% overall high deductible health plan enrollment rate that we saw in the previous slide. And what you can see here in this graph is what’s happening over time, especially since 2010. The enrollment rate for the HRA is staying relatively flat whereas HSAs are starting to really take off. Numerous reasons why we’re realizing this growth here.
We’ve already started to delve into the cost sharing being a focal point and really expanding upon that. And what we’re really witnessing here is the emergence of the whole health to wealth mentality as employers are really looking to provide savings opportunities, whether it’s cost of near-term care or looked at as a vehicle toward long-term savings with retirement goals in mind, and definitely never too soon. Plus add in the fact of post-retirement medical costs, and lifestyle expenses. This is definitely front of mind and an emerging trend.
There are many attractive aspects to the HSA plan for sure. And employers are really starting to get the message. Behind the emerging growth pattern, employers are really starting to adopt the role as a mentor to not only help empower their workers with savings opportunities but really to truly understand the healthcare options available and making sure that their employees understand them in nature too to help make more informed decisions.
And this is really a great transition to all things HSA here. And what we’re looking at on this slide is really the participant focus. I’ll hit on this at a very high level. There are definitely flexible options behind the HSA. And it helps to really create that awareness for participants right out of the gates especially for that younger workforce generation. As we know, they’re generally struggling to save due to the common hardships and burdens of things like financial debt and student loans and just home ownership costs.
There’s also the aspect of just a general negative overall perception and general mistrust of the healthcare system among younger workers. So we’re really trying to turn the corner. And the HSA is just such a great example to help kind of break down those barriers and those general misconceptions here and to provide that savings vehicle to really help the younger workforce get off the ground and maintain a firm hold as they grow in their career and grow their families and prepare for the future. So, regardless, here are the salient points that really make the HSA an enticing plan offering. So there are those triple tax savings, contributions, investment growth, and qualified medical expenses. Withdrawals are all tax-free.
A matter of fact, we’re hearing more and more in the national media that this trifecta of tax savings is really being considered more of a quadruple portfolio of tax saving benefits. Simply, that’s accounting for the employees and employers being able to avoid the 7.65% FICA tax. So that’s kind of a fourth benefit of a tax option, if you will. So, simply put here, money in, money earned and invested, and money out, all on a pre-tax basis.
Investments. Now, this is truly a diamond in the rough here with lots of potential to grow. So according to the latest Devenir research, HSA investments are up 29% year-over-year. That’s great growth. However, there’s just so much growth potential here because Devenir is also telling us that 24% of all HSAs remain unfunded. That means nearly one in four participants are not taking advantage of investment options. And finally here, there’s the portability behind the HSAs that make them such an attractive option. The participant ownership. The fact that they get to truly own the account and take it with them as they go should they switch employers or health plans.
Okay. So we’ve broken down the high deductible health plan by the HRA and the HSA accounts that help supplement the plan design. And we’ve really started to spark the conversation here how HSA is really a selling tool for bottom line benefits, both employee and employer alike. But the reality here, as we’re seeing on the slide, is there’s so much room to grow in terms of conveying and persuading that message for a plan adoption.
Sure, the market is growing and HSAs are really attractive from the consumer perspective. But, as depicted by this study, there’s just so much room to grow. And that’s what definitely excites me here. So what we’re looking at here is the focus on large employers, defined as having 500 or more employees. So if you look to the right there, the 2016 peak if you will, we’re seeing that 53% of employers are offering a high deductible health player…excuse me, a high deductible health plan paired with an HSA. But only 24% of the employees are actually enrolling in those plans.
Okay. Let’s so flip the script here and look at that a different way here. So that essentially means that 76% of employees are bypassing this plan option altogether and 47% of employers too are not offering. So that’s definitely leaving some money on the table from both perspectives, employers and employees alike. Very interesting.
Okay. And this slide very quickly I’ll hit on this. It’s kind of almost a mirror image of the slide previous. Only this focuses on the jumbo employers. And as you can see, the trend is really emerging in this market space. As a matter of fact, it’s booming. In 2019, 87% of all jumbo employers are projected to be offering an HSA option as part of their plan design. Again, very encouraging.
Now what we’re gonna look at here, typical enrollment rates year-over-year with an employer for HSAs when another plan offering is available to employees. We’ve already hit on room to grow. This is kind of a real-time depiction of slow to grow as well. So the years across the bars here say 2014, 2015, 2016, but you can really also look at this as year one, year two, and year three of HSA plan adoption and enrollment growth.
So you’re seeing a general average of 31% opting into HSAs in year one of a plan and two years later, that third year of the plan offering, at just 38%. So slow and steady, but there are some barriers that we wanna tackle today in terms of helping us turn the corner and really emerge at this growth strategy and look at it from the cost savings perspective.
So how do we do that? What is key here is that driving enrollment is really about keeping cost down and employers we know are struggling with enrollment when it is an optional plan design. So we know these barriers in place. So the question moving forward here is that how do we really help to break them down and promote more growth and more savings as a result?
All right. This is the fun stuff here. Okay. What we’re looking at now is an analytical look at how participants think. This is based on real-time data derived from a ConnectYourCare study of I think over 14,000 participants that are opted into tax-advantaged savings plans. So what you wanna do is you really wanna kind of break down how your participants are perceiving their options and then, of course, kind of custom craft your communication strategy around these results here.
So looking at the survey here, what’s really interesting is by far the most important factor in influencing enrollment, 39% here are saying previous experience with a tax-advantaged account. Second most valuable tool as we say here, communications followed closely by savings calculators. So that really means that participants are looking out for the tools and resources and messaging to just better understand what’s in front of them in terms of their plan options. Following on that was advice from friends, family members and financial advisors. And that’s about 12% of the overall audience.
We’re really seeing a strong trend there in the younger workforce who typically rely on peer reviews and opinions, social media. They’re always writing reviews. They do look outward to get strong recommendations from those they trust, and social media is just such an integral reality and part of their lives. That’s very important to note here. It’s a good takeaway as well in terms of how you wanna communicate the message and what mediums or vehicles you are using to communicate the message, should your company be a strong advocate of social media to create awareness just from a general HR strategy perspective here?
And finally here, what we’re seeing is very surprising. Only 3% found enrollment fairs to be an effective method of driving decisions in terms of enrollment. So it’s very interesting because we all know that first-hand Open Enrollment Fairs are not cheap. It’s a significant investment of not only money but time and resources. But we’re finding that employees just aren’t making those decisions at the Enrollment Fair.
So, what does this all tell us? Inertia and comfort level, whether good or bad, may have more of an impact than most employers would have thought. So communication saving tools together can have a significant impact just as much as previous experience. So think about that. And you may wanna spend considerable time on communication plans when it comes time to framing up your open enrollment message. And look at it as a year-round approach. It’s just not about before open enrollment or at open enrollment. It really has to be a cyclical message that really resonates with your work staff.
All right. We are gonna dig into the same ConnectYourCare study just a little bit deeper here and look at the key motivators that are driving decisions. So what are employees thinking about during enrollment? Here’s what we found as your employees are making those decisions.
So what’s really interesting is I do wanna point your attention to that middle pie graph, 63%. That number reflects the number of participants that are looking toward the future. Specifically when asked what their primary retirement concern was, whether it was healthcare or lifestyle, 63% of the 14,000 respondents chose healthcare expenses as their primary retirement concern. And that would be over lifestyle expenses such as mortgages, car payments. Just very, very interesting that that was the takeaway here. So, again, communications that promote health savings account as a long-term savings vehicle definitely speak out to this concern.
And really quickly here, we’ll look at the other two statistics. To the left, we have 40% of all respondents said the primary reason for enrolling in an HSA was as a savings vehicle for future healthcare needs. And to the right, 59% said reviewing previous spending habits, they view that as the most useful activity, deciding how much they would like to contribute to their health savings account.
Okay. We touched on the health and wealth aspect a little earlier here and we’d like to delve into that a little further, so keeping in mind the impact of a well-balanced health and wealth financial message. While the savings aspect of the HSA is indeed widely publicized, there is room for growth in effectively communicating the message come open enrollment time or any time of year for that matter, as I just alluded to a few moments ago.
So, at this slide here, we’re looking at the HSA framed up against other savings opportunities. And the important takeaway here is account balance growth after 15 years. We do ask ourselves, is that the first dollar forward? Is that first best dollar best suited for an HSA account? This is a conservative model. We see many different models, but the answer to that question is generally yes here. So if you look after 15 years, the value of an HSA could be as much as 18% higher than a 401(k) and 33% higher than a Roth IRA or a regular savings account for that matter. That’s a big difference. It really goes a long way, straight into the retirement nest egg.
So another way to look at this from the health and wealth perspective in aligning the 401(k) savings goals is right now a 55-year-old healthy couple is likely to spend more than $450,000 in today’s dollars on healthcare cost of retirement. And, again, that’s even with conservative modeling. We’re not saying here that you shouldn’t contribute to the 401(k) rather, but definitely bear in mind the HSA options, especially early on in careers, the tremendous uptick in growth opportunity in terms of that best first dollar forward.
As a matter of fact, the trend we’re seeing is a lot of companies come open enrollment time are putting their benefits administrators and financial advisors in the same room to really convey that message, the importance of fiscal health and financial wealth and how they do blend together. So, again, another best practice as an emerging trend for sure.
Okay. And this slide, I’m very excited about. This is really hot off the press information here. We talked about the HSA as the best first dollar, but what about the HSA as the best first $100. So this is just a representative example of the younger workforce persona that we’ve been using as a model example, if they would have put $100 towards the HSA as opposed to other types of accounts, namely in this case the Roth or the 529 plan. So what we’re seeing here is that the HSA truly wins out. It reaps the full-force contributions and investment returns given the triple tax exemptions also. We’ve alluded to that quadruple FICA tax advantage as well, not only upfront but afterward as long as used for healthcare.
So the takeaway here is HSA can be the first horse out of the gates and there are varying models based on sophisticated tax laws and where you are in your career and your path to retirement where there are attractive options for the Roth and the 529. Again, not taking away from those types of accounts, but the key takeaway is the HSA is always gonna have a horse in this race. So, again, very excited to share this with you.
All right. So we’ve hit on effective communication plan. Let’s blend this together with account funding options available to the employer, which in turn make the high deductible health plan with an HSA an even more attractive offering. And this is where we’re really getting into some innovative solutions here, something that ConnectYourCare has helped our client base to really significantly realize and achieve bottom line savings and employee satisfaction.
So this is based on a case study here. So what we’re looking at is accelerated funding options. That is the ability to offer your employees seed funding, not only the employer contribution but the employee contribution on day one of a health plan. So when you bundle that together with a very strong communications plan, it delivers two times the natural average in terms of plan adoption rates.
So what we’re looking at here is on-demand access to funding, something truly unique to ConnectYourCare, proprietary in fact, but fully compliant. We’ve rolled that out to clients and it has really helped not only importantly help their adoption rates and have bottom line savings, but it also takes that scare out of the high deductible for the employee that is opting into the high deductible health plan. Just knowing that they’re gonna have money on day one of the plan year is really a comfort for them. So take into account if they have to get a prescription, that money’s gonna be there. You don’t see it very often but if there’s a catastrophic event or an elected surgery scheduled, that money’s gonna be there to cover. So it’s an assurance for employees and for employers, a very low risk.
As a matter of fact, we see from our population that 30% of all employees that take advantage of accelerated funding, only 15% of that 30% population actually use the funds. So, again, very low risk to the employer in terms of the upfront funding. And, as a matter of fact, mostly all funds are recouped on the back end. Just, again, a great story. Again, nearly doubling the election rate for high deductible HSAs when compared to the national average.
Okay. Let’s move on here. As I alluded, high deductible health plans are associated with risk. But if employees have access to that accelerated funding on the front end, it definitely has a demonstrated impact on their decision to enroll into a high deductible health plan here. So the fact that 70% of surveyed employees indicated that their decision to enroll in a high deductible health plan offering an HSA was driven by access to accelerated contributions, that clearly tells us that there’s an overarching concern for funds early in the plan year, start of the plan year for that fact when with traditional high deductible health plans or HSAs, that balance could be zero to low. So, that accelerated fund really helps to offset that high deductible and really break down a wall to enrollment barriers or break down that barrier, if you will. So, very excited to report this.
Okay. And a third best practice, if you will, that we talked about or introduced at the beginning of the presentation was that move to the full replacement HSA. So, again, the full replacement is defined as the high deductible health plan with the HSA as the default option here. So what we’re looking at here is another case study success story based on one of our clients that realized significant savings when they moved to that HSA only full replacement plan.
So this particular client did a lot of research. They are in the financial services industry. So they took a very slow and steady calculated approach to moving full replacement. I think they introduced it as a slice offering with some of the other traditional pairings. And it took about a course of I think three years to make the full switch.
So what we’re looking at right now is the savings that they have realized as a result when compared to other businesses of similar size and scope in their industry. And, as a matter of fact, the key takeaway here is when the client really moved to that full replacement strategy, their employee enrollment rate exceeded the industry average by as much as six times. That’s phenomenal.
The company has since been able to maintain a lower medical cost per employee than similar companies. So definitely a key success and an argument for that full switch strategy. I know the data is showing that a lot of companies, especially the jumbo enterprise companies, are taking that into consideration as we continue to see those premium surge, and those costs get to the point where the employee-employer cost sharing needs to be balanced out. So the full replacement HSA it’s definitely an attractive option there as we continue to kind of unravel the options available and see more of an emergence towards that full replacement strategy.
Okay. Let’s look at another way to save here. This is still looking at the full replacement strategy under a microscope. When you couple it with our first two tips, that being the communication strategy and the accelerated funding options, the general jump here, again, we’re looking at jumbo companies, from that 28% that we saw on the front end, we’re seeing 60% of all jumbo companies intend to go full replacement by 2019. So, again, let’s look at that orange graph to the right here. So the dark orange on the bottom is representative of the current numbers.
So that 28%, again, that’s the 2017 stat. And now what we’re looking at is the jump to 2019, which is 60%. This is a different study but very similar to the data we reviewed earlier in the deck that just shows a pretty emergent jump when it comes to consideration for jumbo enterprise businesses to elect HSA only plans.
Okay. So that’s everything wrapped up here today. Again, today’s full focus was on the power of the health savings account and how it can be viewed as a bottom line saving strategy for employers as well as a long-term savings tool for your workforce in terms of retirement and lifestyle expenses when introduced as early as possible into the plan design.
We head on how important and impactful the right types of communications are, the tools and resources behind your messaging. Again, Open Enrollment Fairs not necessarily being the primary driver towards enrollment but those things like previous plan experience, savings calculators and just general advice from families, friends, peers. All of those things kind of bundle together and factor up to something that could be an impactful message statement all year round. Again, not just pre-enrollment time of year.
And from there, we transitioned into more statistics that speak to the emerging trend towards a high deductible health plan, HSA default only strategy which, again, defined as that full replacement strategy. So we were pleased to share with you some case studies that showed the communications, the accelerated funding option blended together and just that general two times increase, double increase that is, in enrollment rates wrapping up nicely with a company of ours that was seeing six times the savings as industry counterparts when it migrated to the full replacement over a three-year span. So definitely data-driven.
We we’re seeing great results here and we’re seeing the trends and patterns continue to peak and lean towards an HSA being a very attractive option for a plan design. And we are seeing that payout just generally speaking when we look at the financial health and well-being aspect. We looked at the first dollar and the first $100 when put into the HSA account as opposed to the 401k and some other savings options as well. Again, just to reiterate, not taking away from the other types of health savings, I’m sorry, the savings plan options, but the HSA is better in cases and very complementary. So things to consider when balancing out your just overall human resource message when it comes to plan benefits as well as financial savings.
So thank you again for your time today. It was truly a pleasure to be able to present this information. Once again, my name is Jamie Janvier, program manager with ConnectYourCare. My contact information is on this last slide should you have any questions or requests for additional information. And it has been my absolute pleasure to share this information with you today. I hope you’re able to walk away with some informative and worthwhile information to share with your colleagues and your workforce. Thank you very much. Have a great day.