Challenges for brokers: Why HSAs might not give employees what they really want.
Historically, when it came to employer-sponsored health insurance, there was one plan consistently offered by brokers and business owners: a high deductible health plan (HDHP) with a health savings account (HSA).
In recent years, though, employees have pushed back on that plan design because of the high costs to consumers, says Alison Kosup, senior vice president of strategy and emerging markets at Surest.
Why HSAs might not be for everyone.
High deductible requirement
For employees focused on the present, the benefits of an HSA can be overshadowed by the HDHP that goes along with it.
The amount of the deductible, in particular, can make some employees nervous.
Although deductibles are intended to control spending, lower-income employees face a higher financial burden when a chunk of their income is allocated towards a deductible. Approximately 50 percent of adults with health insurance express concern about affording their deductible.1
In 2024, the IRS requires a minimal deductible amount of at least $1,600 for an individual, and $3,200 for a family.2 Hitting those deductibles can put a wedge between employees and the care they need.
“HSA plans often mean higher out-of-pocket costs,” Kosup says. “It can be hard to come up with cash to meet the deductible.” This can be daunting, she says, for employees who have immediate or short-term care needs.
According to the Federal Reserve’s 2022 Economic Well-Being of U.S. Households report, nearly 4 in 10 Americans lack enough money to cover a $400 emergency expense.3
What happens, Kosup asks, if employees can’t afford to cover the initial costs of trying to hit a deductible? Will they skip necessary care or stop filling their prescriptions?
According to the Kaiser Family Foundation (KFF) Tracking Poll, that can and does happen.
Approximately a quarter of adults taking a prescription drug said it was challenging to afford their prescription drug medications.4 The high cost of medication was cited as the reason approximately one in five people chose not to fill their prescription at all, and the reason one in 10 people cut pills in half or skipped doses.5 Turns out, having to hit a high deductible can actually discourage health care use.
401K, IRA, then HSA
In order to max out an HSA as a retirement plan, employees should first fully contribute to their 401K and Roth IRA, explains Shawn Wagoner, chief revenue officer at Surest. It takes time to fund an HSA—a fund to save money some people don’t have to pay for health care needs they may or may not encounter. It’s why HSAs weren’t really designed for retirement, he says, and why the percentage of people who use their HSA as a retirement tool is relatively small.
Complexity and management
An HSA requires a degree of involvement that can push some employees away. “It can be overwhelming,” Kosup says. “They have to make decisions about contributions, track their expenses, and manage reimbursement receipts.” Mistakes can even lead to tax penalties.
Lack of transparency
While HSAs can help fund qualified medical expenses after they’ve occurred, Kosup says, the expenses themselves likely won’t be known until after employees get the bill. There’s no opportunity to see prices in advance, comparison-shop, and choose what works best. There’s no opportunity to try to reduce out-of-pocket expenses. Without price transparency, does this strategy do much to slow overall health care spending?
Early withdrawal penalty
What happens if employees need access to HSA funds before age 65 for a nonqualified expense like a downpayment, tuition, or financial hardship? To withdraw the money, there’s a hefty penalty—20%—in addition to paying regular income tax.
The importance of a modern, flexible benefits package
How does an organization strike the delicate balance of giving employees what they really want—affordability—without cost-shifting?
One effective way brokers can support employers in this initiative is by offering a no-deductible health plan. Rather than setting money aside for a maybe-someday-future health care need, a no-deductible plan allows members to maximize their health care dollars now.
Another way brokers can support clients during open enrollment is by offering a dual option, says Kosup. Offer two plans: An HDHP/HSA plan “for employees with tax-savings goals,” she says, alongside the no-deductible Surest health plan, designed for employees who value predictable pricing and immediate cost-savings opportunities.
For more information about this dual offering, contact your UnitedHealthcare representative. Not sure who your representative is? Contact us.
HSAs, HRAs, FSAs?
Is the Surest health plan compatible with health savings accounts (HSAs), health reimbursement arrangements (HRAs), and flexible spending accounts (FSAs)?
Members can submit expenses to their HRA and FSA for reimbursement. Because the Surest plan is not a HDHP—a requirement of contributing to an HSA—Surest members are not eligible to contribute to an HSA. They can, however, keep using funds in an HSA accumulated while on another plan. For a detailed look at what exactly HSAs, HRAs, and FSAs are, read this blog.
1 KFF, “Americans Challenges with Health Care Costs,” December 2023.
2 Internal Revenue Service. “Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans,” 2024.
3 Fed’s 2022 Economic Well-Being of U.S. Households survey. Published 2023.
3,4 “Public opinion on prescription drugs and their prices,” KFF Research, 2023.