INCREASINGLY, employers and retirement plan providers are touting health
savings accounts (HSAs) as a way to plan
for health care costs in retirement, but why
are employees not using them more?
According to Alex Tolbert, founder
and team member of Bernard Health, a
health care advisory group in Nashville,
Tennessee, people misunderstand these
plans, often because employers present
them less than optimally during open
enrollment. He says this leads to savings
account underutilization by employees
who may be unclear on the full benefit
A first-tier issue, according to Tolbert,
is that when employers compare the
various health plan options employees may
elect, instead of describing the HSA in
terms of a health plan, they discuss it as a
saving account with related tax incentives.
“They are comparing apples to
oranges,” Tolbert says. “They’ll talk about
the health merits of non-HSA eligible
health plans and emphasize the savings
account for the HSA eligible plan. The
bank account really ought to be treated like
the cherry on top.”
Similarly, Bernard Health recom-
mends avoiding discussion of “high-
deductible health plans” (HDHPs), which
HSAs accompany. “Mention high deduct-
ibles, and many of those same employees
tune you out right away,” Tolbert says.
The HDHP and the HSA are two
separate components with separate laws,
according to Steven Mindy, a senior associate at Alston & Bird LLP, who focuses
on employee benefits, the Employee
Retirement Income Security Act (ERISA)
and the Affordable Care Act (ACA). “In
order to have an HSA, the employer must
have a plan that meets certain requirements, including deductibles at or higher
than $1,300 for an individual or $2,600
for families,” Mindy says.
According to Mindy, an HSA is a
consumer-directed account that is individually owned, similar to an individual
retirement account (IRA). An employee
may sign up for an HSA, and he and/or his
employer may contribute to it. Either way,
the employee owns it and takes it with him
when he terminates; it cannot revert back
to the employer.
From Tolbert’s perspective, a second
error that employers can make, and that
interrupts the full implementation of an
HSA health plan, is failing to integrate the
savings account piece into the enrollment
The best practice would be for an
HSA administrator, which could be a bank,
insurance company or an Internal Revenue
Service (IRS)-approved bank trustee, to
enter into an agreement on the back end
with the plan sponsor before open enrollment, says Mindy.
Worst case, according to Tolbert,
is that the employee elects his monthly
contributions to fund his account, the
payroll department deducts the contributions, and the savings account was never
opened. Some employees bow out of the
HSA due to the inconvenience of setting it
up and then just stay in the HDHP.
Tolbert says another issue is that
employees may not be maximizing the
value of these accounts and are, therefore,
not funding them as they might.
He educates his clients by emphasizing that an HSA is the only way for an
employee, and an employer, to avoid FICA
[Federal Insurance Contribution Act] taxes.
If employers allow it, employees may fund
their HSA with payroll deductions, in that
way avoiding FICA taxes of 7.65%, plus
income taxes. —Judy Faust Hartnett
in 60% of large-employer benefit
offerings. PPO* plans
are the most popular
enrollment in 2016.
*Preferred provider organization.
In 2016, 29%
of all insured
enrolled in high-deductible
an increase of
9% since 2014.
Source: Kaiser Family Foundation
53% of people
were not aware
of how health
as they think
Source: Fidelity Investments