Making HSA-qualified health plans work for low-income employees

For some people, the costs of healthcare are manageable at their present income level.  However, for a growing number of individuals in the U.S., the cost of healthcare has become overwhelming and utterly unaffordable. For example:

• The West Health Institute and the University of Chicago recently conducted a poll that found that more respondents (40%) feared paying for medical bills than actually feared an illness (30%).
• The poll also found that 44% of respondents did not go to the doctor when they were sick or injured, and 40% had skipped a recommended medical treatment because of the cost.
• The poll noted that 30% of respondents said they had been forced to choose between paying medical bills or paying for necessities, such as food or rent, in the past year.

Among all Americans who struggle with healthcare costs, workers who earn less than $50,000 per year face the stiffest challenge. HSA-qualified health plans, when paired with Health Savings Accounts, can provide some relief (including lower monthly premiums), but in order to maximize the benefits for low-income employees and their families, a new approach is needed.

Introducing the 'HSA Partnership'

Because many low-income employees feel they cannot take advantage of current HSA plans and their associated Health Savings Accounts, best in class employers have begun to implement "HSA Partnership" strategies.

 An "HSA Partnership" is designed to engage employees, especially those with low incomes, to actively partner in the management and funding of health care costs.  Key elements of this strategy include:

• Offering employees a matching contribution of $250 to $500. While these amounts seem relatively low, the readily attainable 'optics' that these modest amounts represent have a material impact on the actual willingness of low-income employees and their families to contribute funds into their Health Savings Accounts.
• Offering an annual upfront employer HSA contribution seed of $500 to $1,000 that helps workers and their families, especially those with lower incomes, cover healthcare costs and establish a financial cushion early in the plan year.
• Making employer contributions income-tiered so that low-income employees and their families get the full employer seed amount while higher-income workers get progressively lesser amounts.

 By contributing upfront and matching employee contributions, employers can actively and materially empower lower-income employees to build healthcare and retirement savings.

To build on this 'HSA Partnership,' employers are selecting partners that deliver ongoing, personalized and service-relevant coaching at the right time so that employees can better understand and optimize the use of their Health Savings Accounts. This support goes beyond education to facilitate timely, data-driven, situation-specific nudges that helps employees and their families learn and thrive as they build health and wealth using their Health Savings Accounts.

Partnership plans: strategic implications for employees

*30-year savings opportunity for employees (based on a family that lives in Columbus, Ohio whose household income is $45,000 - assumes a 7% average annual investment return)

• With a traditional (PPO) health plan, there are no savings possible for the family.
• With a standard HSA plan, the family has the opportunity to save up to $42,600
• With an HSA Partnership, the family has the opportunity to save up to $136,800
• With an HSA Partnership and 401(k) plan, the family has the opportunity to save up to $198,500.

These 30-year savings opportunity scenarios for employees making $50,000 means that low-income employees can finally begin to build short and long-term safety nets for future medical expenses or for retirement.

Partnership plans: game-changing outcomes for employers

When they contribute funds to their employees' HSAs, employers save a combined 9.23% on FICA, FUTA and SUTA taxes, as well as an additional 21% savings on corporate taxes and deductions. And those savings can really add up.

*For an employer who has 1,000 employees and contributes $1,000 to their employees' HSAs, that's:

$92 per employee saved on FICA, FUTA and SUTA taxes

$210 in savings per employee for other taxes and deductions

$302 savings per employee per year

$302 x 1,000 employees = $302,000 in annual savings

Conclusion

The "HSA Partnership" approach for low-income employees provides employees with up to $198,500 in savings (if paired with a 401(k) plan) that they will not have with a traditional health plan. Employers can also see significant savings when they take advantage of matching employee's HSA contributions and contribute upfront to their employees' HSAs. These savings can go directly to the company's bottom line.

* The examples provided are hypothetical. Results will vary and may not be representative of the experiences of others.

Nothing in this communication is intended as legal, tax, financial, or medical advice. Always consult a professional when making life-changing decisions.