Health savings accounts (HSAs) are amazing tools for addressing the triple pillars of modern anxiety: money, health, and uncertainty about the future. Their tax advantages and investment potential can help employees reduce healthcare costs, save for retirement, and maximize tax refunds. And yet, that’s not how most employees understand them — if they understand them at all.
About half of American employers offer HSAs — coupled with high-deductible health plans (HDHPs) — but, according to one study, 69% of employees don’t understand their benefits or uses.
When given the option, nearly two-thirds of employees enroll in an HSA-eligible health plan — a sign of progress! Less encouraging are the facts that:
- Only a tiny percentage contribute the maximum allowed.
- Fewer than 20% of HSA participants invest their funds; 70% of HSA assets remain in cash.
In short, your employees are missing out, and so is your organization. Higher HSA enrollment and usage can take a bite out of your company’s FICA taxes. More importantly, by boosting their financial security, HSAs can help quell some of the worries that are fueling mental health issues among employees and driving them to distraction.
Related: An Email Template to Educate Your Employees on HDHPs and HSAs. Read it here →
What Do Your Employees Need to Know About HSAs?
Employee confusion about HSAs generally falls into two categories:
- Why should I enroll in an HSA-eligible health plan?
- Once enrolled, how should I use my HSA?
HSA Messaging for Non-Enrolled Employees
Let’s start with the first group: employees who have not yet enrolled in HSA-qualified health plans and may be skeptical about their value.
These employees are often reluctant to leave the familiar territory of traditional health plans like HMOs and PPOs. So, your job is to demonstrate that, while HDHPs with HSAs may come with trade-offs, employees often stand to gain far more than they lose.
Essential messaging for this group of employees includes:
1. HSAs Are Triple Tax-Advantaged
Nearly every HSA advantage stems from this fact: HSA funds are forever shielded from taxes when appropriately used. Not only are HSA contributions tax deductible, but investment growth and funds used for qualified medical expenses are also protected. Very few savings accounts offer similar benefits.
This means that when you have an HSA, you can keep more of the money you earn. And by investing your HSA, you can actually make money tax-free. This message may resonate strongly during the weeks following April 15, when employees are researching strategies to reduce their tax burdens.
2. HSAs Are Not the Same As FSAs
Some of the confusion around HSAs may be rooted in their association with flexible spending accounts (FSAs). Both account types are funded with pre-tax contributions, and both can be used to cover healthcare expenses. But the similarities end there.
HSAs are savings accounts. FSAs, on the other hand, are meant for spending. Unused FSA funds expire, while HSA funds rollover indefinitely — and even survive the original account holder’s death.
Moreover, HSA funds can be invested. A dollar invested in an HSA one day might be worth $10 several years down the road. FSAs do not have the same kind of growth potential.
The crucial message for employees is that, unlike with FSAs, they do not have to worry about using their HSA funds before the year ends. In fact, holding off on HSA spending for as long as possible is a sound savings strategy.
3. High Deductibles Are Nothing to Be Afraid Of
Everybody — except maybe insurance providers and well-informed HR professionals — hates deductibles, which is why whoever came up with the term “high-deductible health plan” did the employees of America a grave disservice.
Sure, a multi-thousand-dollar deductible can sound scary, but when combined with an HSA, a high deductible can be a feature, not a bug.
Even without factoring in HSA savings, HDHPs typically have much lower premiums than traditional health plans, translating into more take-home pay for employees (or more money to be invested back into the HSA).
With an HSA, healthcare costs can be covered with pre-tax dollars, including expenses typically subject to a deductible — such as doctor visits and medications — and nearly any out-of-pocket medical expense, including everything from sunscreen to contact lens solution.
Since HSA funds roll over indefinitely and grow tax-free over time (when invested), the longer you maintain an HSA, the less significant those high deductibles become.
Messaging for Employees With HSAs
For employees who have already enrolled in an HDHP and contributed to an HSA, your messaging should revolve around maximizing their contributions. The goal is to help employees see their HSAs as investments rather than simply places to set aside money.
Crucial lessons for this employee group include:
1. Invest, Invest, Invest!
The tax-free return on an HSA investment may not exactly be free money, but it’s pretty close to it. The message is simple for employees with unused funds sitting in their HSAs: You could be leaving thousands of dollars on the table.
HSA administrators typically offer a range of investment options, including mutual funds, exchange-traded funds, stocks, and bonds. Experts recommend choosing an investment strategy based on age, medical needs, and other factors. Employees may come to you for help, so be prepared to steer them toward plan administrators or investment advisors.
(Consider adding HSA investment tips to your employee financial wellness program.)
2. If Possible, Delay HSA Reimbursement
A key HSA feature is that there is no time limit on reimbursements.
If you break your arm today and receive a $10,000 bill for treatment, you could pay for it with your HSA funds. Or, you could pay out-of-pocket, invest that $10,000 through your HSA, and withdraw it tax-free at a later date. The difference is that, over time, that $10,000 seed can grow to $100,000 or more. You would have made $90,000 in the process—with zero tax consequences.
Of course, for this strategy to work, your employees must absorb one more key message: Save your receipts!
3. HSAs Can Help You Save for Retirement
As noted above, HSA withdrawals for qualified medical expenses (of which there are many) are always tax-free. If you do choose to withdraw funds for other purposes, they become subject to regular income tax plus a 20% penalty. However, after age 65, there is no penalty for non-qualified withdrawals, just income tax.
The message here for employees is that HSA planning should always be done with an eye on retirement because that is when the investment truly pays off. As we age, we all have greater healthcare needs, but even if you decide to use your HSA money for something else, a small contribution made years earlier can grow into a substantial and accessible nest egg for when you need it the most.
Building an HSA Communications Strategy
In this article, we’ve covered six essential HSA benefits to share with your company’s employees. Now that you know what to say, the question becomes how you say it.
HSAs are powerful investment tools, but they can be a bit complicated. HSA-related content runs the risk of getting bogged down in jargon and technicalities, which can be off-putting to busy employees, to say the least.
The keys to successful HSA communication are clarity and personalization, simplifying complex concepts, and making them concrete with side-by-side comparisons, illustrations, and real-world scenarios.