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The challenge is even more important under health care reform as high-deductible health plans become more prevalent and employers look for ways to aid employees in managing their enhanced financial risks under the higher deductibles.

Benefits Business

People with HSAs are happy with them

But those who reject them don't understand the benefits and differences from FSAs

By Len Strazewski

Health benefits innovation may be providing new ways to manage employer and employee finances, but the complexities of plan design may be more than plan participants can bear. And the situation may just get worse under health care reform.

Agents and brokers and their benefits customers will have to design more effective benefit communications programs to counter growing confusion about increasingly complicated plan designs and federal regulations, industry experts say.

For example, health savings accounts (HSAs) may be a cost saver for employers and a tax bargain for employees in high-deductible health plans, but many potential participants don't really understand the complex rules. And employers haven't done a great job explaining or promoting the options since they were introduced nearly 10 years ago.

HSAs allow participants to accumulate and invest assets in tax-advantaged accounts. The assets can be withdrawn for qualified medical expenses within the plan year or later, even after a participant retires.

According to a new poll of household benefits decision makers conducted by Fidelity Investments in Boston, many benefit plan participants do not understand how HSAs work and how they can benefit from savings over a long term. The investment company administers HSA assets.

The study was conducted earlier this year by GfK Public Affairs and Corporate Communications, surveying 1,836 U.S. adults ranging in age from 25 to 62 years old who receive health benefits from their employer and who have the primary responsibility for family financial decisions.

Among this panel, 306 self-identified as being enrolled in high-deductible health plans that allow HSAs and an additional 306 said they had access to but declined HSAs.

About 65% of this combined group who had reason to consider the account features said they did not fully understand how the account features work or how the plans differ from the older Flexible Spending Accounts (FSAs).

Jeff Munn, vice president of benefit plan development in the firm's Washington office, notes a dramatic discrepancy in understanding between those who have chosen to enroll in HSAs and those who declined.

"By a high percentage, those who chose HSAs are happy with the accounts and recommend them for their long-term tax advantages," he explains. "But the challenge is to get more employees to understand the features and take advantage of them."

The challenge is even more important under health care reform, he adds, as high-deductible health plans become more prevalent and employers look for ways to aid employees in managing their enhanced financial risks under the higher deductibles.

According to an industry market study from Devenir, an investment marketing firm in Minneapolis, Minnesota, HSAs continue to grow in popularity. At the end of 2012, 8.2 million Americans who were eligible opened HSA accounts. The number is expected to increase 73% to 14.2 million by 2015.

However, the growth has been suppressed by confusion, Munn says.

Only about half of survey respondents, about 48%, cited the value of carrying over funds from year-to-year, and 45% said they understood how the plans lowered their insurance premiums. About 38% cited general tax savings and 25% said they valued the accounts as a way of saving for medical expenses in retirement.

"Despite some of the positive findings, there are still some powerful misconceptions among potential participants. The first assumption among eligible individuals who declined is that there is really nothing new in HSAs. They believe that the accounts are the same as FSAs—with the same limitations.

"They believe that the assets are lost if not used during the plan year and are not really eligible for long-term investment and future use."

About 73% of survey respondents reported that HSAs and FSAs were about the same or were unsure of differences. About 69% said they believed they would lose funds if they were not used during the plan year.

This misconception is particularly troublesome, Munn says, because it limits the strategic use of HSAs in retirement planning.

"How many employers offer any retiree medical benefits at all? Fewer and fewer. Yet employees generally have no sense of what they will need to fund medical expenses that exceed Medicare and Medicare supplement benefits—or that HSAs can be used to create and invest a fund balance that could be used during retirement for qualified medical expenses."

Fidelity calculates an annual estimate of post-retirement out-of-pocket medical costs for retirees. The latest estimate is $220,000, which includes uncovered medical expenses and supplementary insurance premiums.

Munn recommends that employers and their benefits advisors build multi-year communications plans that highlight HSA plan advantages in the near term as a cost benefit for the present but also include the long-term value in discussion of retirement benefits.

In the first year, information sessions should begin 60 to 90 days before the open enrollment period, he says. "It is important to give employees practical examples of HSA benefits and the way the features actually work," he says.

The survey results indicate that Summary Plan Descriptions and lists of features have been a communications failure. "In the first year, do the math," he says.

In the second year, Munn recommends benefit advisors go back to HSA participants to assess their satisfaction and identify real success stories that can be used to enhance the message. Familiar faces, or at least familiar scenarios drawn from experience, provide a stronger and more compelling message.

HSAs are not the only conundrum that employers and their agents and brokers will face in the next couple of years. Clarity will be more important than ever as employers renew their commitment to providing health benefits to employees and, to a lesser extent, retirees under the provisions of health care reform.

But that commitment is likely to be delivered with new plan designs that will require extensive employee communication and education.

According to a survey of 420 large and medium-sized employers, conducted earlier this year by Towers Watson in New York, employers remain concerned about increasing premiums, projected to rise about 5.2% in 2014, and avoiding an excise tax for rich benefit plans that goes into effect in 2018. But most, about 82% of respondents, say they remain committed to subsidizing health benefits for employees as part of their overall compensation and human resources strategy.

The benefits landscape, however, will grow increasingly complicated and confusing as new rules and new modes of delivery—including public and private health exchanges—enter the marketplace.

"The health care landscape is changing rapidly thanks to health reform, continued cost escalation, the emergence of health benefit exchanges and new provider contracting and care delivery arrangements," says Randall Abbott, a senior health care consultant at Towers Watson.

"While employers are grappling with how to comply with health care reform right now, they are evaluating new health care designs and delivery approaches for their employees and retiree populations that will ultimately transform the look of employer-sponsored health plans over the next three to five years."

The author

Len Strazewski has been covering employee benefits issues for more than 30 years. He has an M.S. in Industrial Relations from Loyola University in Chicago.

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