Want to optimize your HSA program design? Consider taking these 5 key actions.

Resources to help educate your employees

Share this series of consumer-focused articles to help educate employees about the basics of HSAs, including the short- and long-term benefits they can offer:

• HSAs in every budget: A guide for spenders
• HSAs in every budget: A guide for emergency savers
• HSAs in every budget: Investing for retirement with your HSA

It’s mid-way between annual tax-filing deadlines — a perfect opportunity for employers, employees and their advisors (benefits brokers, financial planners, accountants and retirement advisors) to reflect on HSAs and the vital role they can play in a personal financial plan to and through retirement.

HSAs can help ease today’s financial strains

Studies show Americans — many of whom are insured — are struggling to pay their out-of-pocket medical expenses. According to 2024 KFF polling data Americans report these health care cost challenges:

• Almost half of U.S. adults say it is difficult to afford health care costs¹
• One in four adults report skipping or delaying health care due to the cost¹
• About four in 10 adults (41%) report having debt due to medical or dental bills¹
• Plus, 48% of adults covered by health insurance worry about affording their monthly health insurance premium¹

Fortunately, HSAs can help ease this financial impact. Most employees enrolled in HSAs fund their accounts through pre-tax payroll deductions. Both companies and their employees avoid federal payroll taxes on these contributions. And most workers don’t pay federal and state (except California and New Jersey) income taxes.

This means employees can effectively lower the net cost of every qualified medical, dental and vision service purchased. The result: HSA owners who fund their accounts have more buying power to pay medical bills than co-workers with the same income.

But the benefits extend beyond tax savings. When workers systematically save through level payroll deductions, they have the potential to build balances to help them pay large medical bills. This medical savings account can increase their confidence because they’re better prepared to pay for even unexpected eligible medical services, as long as they have the funds in their account. And if they need to use their own funds, they can pay themselves back from their HSA at any point in the future as long as they maintain the documentation to support the transaction.

In addition, some HSA providers offer investment potential once an account holder reaches a minimum balance to potentially grow their money and any investment earnings aren’t taxed.² According to the Employee Benefits Research Institute, more people are leveraging this powerful tax advantage as the number of those investing their HSAs has increased over the last six years.³ As with any investment, there are risks; accountholders should make sure to fully explore those risks before choosing to invest.

5 actions to help optimize HSA program design

Here are several actions employers can consider when creating a new HSA program — or modifying an existing one — to better optimize the design and help employees pay for health care costs now and down the road:

1. Choose a long-term administrator: Working with a separate HSA provider from the medical carrier may minimize any future disruptions. For example, if an employer decides to switch insurance carriers later on, the HSA offering may need to change too. This means new cards, new logins and possibly new fees — employees may also lose funds access during the switch.
2. Consider making contributions: Employers can help employees fund their HSAs, similar to retirement plans. Making a flat HSA contribution at the beginning of the year offers employees the chance to fund out-of-pocket medical expenses before their account balance has had a chance to build up.
3. Educate employees about benefits: Information should include both the short and long-term benefits of opening, owning and consistently funding an HSA. Referring to the underlying medical plan as an “HSA-qualified plan” (instead of “high-deductible health plan”) can help better engage and educate workers about the benefits of HSAs.
4. Separate HSA education from open enrollment: Presenting information year-round as well as during retirement planning education sessions can help employees better understand that an HSA can be a financial asset, not just an extension of their medical plan.
5. Offer a diversified investment menu: Employers may wish to provide a way to invest pre-tax HSA funds once a balance reaches a certain threshold. If so, it’s important to ensure the provider can offer a full array of investment options — and fees are transparent and reasonable. High fees on underlying investments and administrative fees can eat into growth potential. Plus, reasonable fees explained clearly may encourage employees to invest for potential long-term growth.

Inflation may lead to even higher medical costs

According to Gallup’s annual Economy and Personal Financial poll conducted this year, inflation or the high cost of living topped the list of most important financial concerns for Americans and their families (41%) — for the third consecutive year.⁴

In June 2024, overall prices grew by 3% and medical care prices increased by 3.3% from 2023.⁵ This is the time since 2021 when medical care prices rose faster than overall inflation.⁵ If that trend continues, today’s general rate of inflation could lead to higher prices for medical care over the next few years as providers and insurers renegotiate their fee schedules.

There are options that can help employers minimize the effect of higher premiums on a compensation budget when offering traditional insurance products are limited. Companies can change their health plan funding arrangement to self-insured, but in most cases those higher prices won’t change. Or they can modify a current insured or self-insured plan by offering a high-performance network, reducing benefits, or increasing employee cost-sharing.

Regardless of the approach, employees can likely expect to spend more out-of-pocket on medical care. When employers offer an HSA-qualified medical plan, it also offers them a tool to potentially help reduce the effect of medical inflation on their personal budgets.

Yes, the price they pay for medical services will likely increase. But when they pay through an HSA, as indicated above, they effectively spend less on average (higher for workers with higher incomes and those living in states with high income taxes) for out-of-pocket expenses.

The Employee Benefit Research Institute (EBRI) estimates that a couple retiring at age 65 in 2023 needed to save $351,000 to have a 90% chance of meeting their medical expenses during the remainder of their lives.⁹ This figure includes Medicare premiums and cost-sharing, plus out-of-pocket spending for services not covered by Medicare (like most dental and vision care). That number increases every year, so workers can expect higher retirement medical costs.

Employers are already helping workers plan for retirement by sponsoring a workplace retirement plan and some are even contributing directly to that account. Offering and supporting an HSA program in a similar manner is a natural extension of that commitment — and can help employees financially prepare for future health care costs up to and even during their retirement years.

The bottom line

Adequate HSA balances combined with emergency savings can help employees pay for major and unplanned health expenses — and potentially prevent hardship withdrawals that can derail their retirement. An HSA program, combined with robust education, is another tool employers can offer as part of a comprehensive benefits program to help employees balance living for today, preparing for tomorrow and feeling confident about the future.

To learn more about Voya’s Health Account Solutions, contact your Voya representative.