New Strategies for Controlling Healthcare Costs
By James Gandolfo, Senior Vice President, Treasury Management, Product Advisor
As employers seek to control the cost of healthcare in an environment of increased regulation and unpredictable increases, Health Savings Accounts (HSAs) may provide a solution. They are often viewed as a strategy for encouraging individuals to take greater responsibility for their health and the cost of care. They can also help employees manage increased premium costs and high-deductible plans. Because HSAs are wholly owned by individuals, they provide an array of tax and savings advantages to employees as well as employers.
Healthcare Policy Premiums Costs Continue to Rise
Average annual premiums for covered workers with family coverage, by firm size, 2000-2015
Premium Increases, Wages and Inflation Rates
Figure 1: Premium Increases Among Employers With 10 or More Employees, Worker Earnings and Inflation, 1988-2014
What are HSAs?
HSAs were established to receive tax-favored contributions by — or on behalf of — eligible individuals. Cash (or investments into permitted securities) in an HSA may accumulate over the years or be distributed on a tax-free basis to pay or reimburse the holder for qualified medical expenses. HSAs are wholly owned by individuals, making them portable, and any (unused) cash or investments in the accounts roll over each year. There is no “use it or lose it” rule for HSAs.
In addition to significant tax savings for individuals, HSAs may mitigate the “Cadillac tax” liability for companies. And they can encourage behavioral changes as employees begin to treat healthcare expenditures as their own.
HSAs’ corresponding health insurance policies may cost much less than traditional, actuarially rich policies and so the savings may be passed on to employees through employer contributions to employee HSA accounts, in lower costs to each employee, or both.
HSAs also have the potential to "bend the cost curve” of insurance by encouraging (through incentives or disincentives) companies to offer lower cost, lower actuarial value policies to the employees.
Synergies between High Deductible Health Plans and Health Savings Accounts:
A Health Savings Account is used for:
HSA funding covers the day-to-day expenses allowable by IRS Code so that the employee can pay with pretax dollars.
A High Deductible Health Plan is used for:
The underlying healthcare plan provides insurance against significant expenses.
HSAs benefit employers because they can:
- Provide healthcare cost savings.
- Allow you to offer an enhanced benefits package.
- Use the money saved by offering an HSA on other types of health insurance such as an FSA for dental or vision coverage.
- Offer flexible contribution guidelines.
- Have the potential to deliver tax savings on payroll and FICA taxes.
HSAs benefit employees by allowing them to:
- Gain tax savings.
- Maintain ownership.
- Roll over funds year after year. (Great retirement option.)
- Enjoy multiple options for making contributions into their account.
- Choose to invest in a variety of mutual funds.
- Pay for qualified medical expenses with multiple options.
“Two-thirds of CEOs and CFOs will be more directly involved in health care strategy decisions than they were three to five years ago to help control costs…” Towers Watson
Dealing effectively with today’s healthcare environment involves individuals at all levels of the organization, including human resources, treasury and C-suite executives. For an overview of recent developments and useful strategies and to get answers to your questions, please look for an invitation to an upcoming HSA-focused webinar on June 27 and extend the invitation to your relevant team members.
James S. Gandolfo, Senior Vice President, PNC Treasury Management, chairs the Health Savings Account Council of the American Bankers Association.
Important Legal Disclosures and Information
Estimate is statistically different from estimate for the previous year shown (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999 – 2015, http://kff.org/report-section/ehbs-2014-section-one-cost-of-health-insurance/
Source: Mercer, National Survey of Employer-Sponsored Health Plans
Paul Fronstin and Anne Elmlinger. “Findings from the 2014 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey.” EBRI Issue Brief, no. 407, December 2014.
“2014 Health Care Changes Ahead Survey Report” Towers Watson. September 2014. http://www.towerswatson.com/en-US/Insights/IC-Types/Survey-Research-Results/2014/09/2014-health-care-changes-ahead-survey-report
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