A Simple Guide for Employers on HSA Plan Design, Part I
Among employers, the average contribution towards an employee’s health benefit is 73% of the cost, with the employee share at 27%.
Here is a simple rule of thumb for employers: An employer which decides to spend their health benefit contribution on a health insurance premium, instead of on a pre-tax deposit to their employee’s HSA, is guaranteeing continued and significant increases in their insurance premiums year after year.
Employees with traditional low deductible, high premium plans will get into their insurance coverage much more often than will employees with high deductible, low premium plans. These employees will consume more health care once they are into their health insurance coverage.
Further, employees with traditional low deductible, high premium plans will behave differently than those spending their own money on their care. Low deductible plan employees view their access to health care services as free or almost free, and when something is free, it is over consumed.
The key point is, by funding your employees’ HSA you are paying them not to get into their insurance coverage. With a low deductible, high premium plan, employers are hoping their employees do not get sick. This is not a winning strategy for cost containment.
Unless a very small number of your employees get into their 100% health insurance coverage, you are guaranteeing that your health insurance premiums will go up the next year – which is where employers really get hurt. It is the annual rate of increase in cost that constantly grinds towards the unaffordability of health benefits.
This series of blog posts will help employers design a popular and effective HSA, and will immediately stop your health care cost increases by showing you how not to spend a single dime more than you are spending this year, for next year’s health benefits.
In general, the simplest and easiest metric of whether your HSA was designed and communicated properly is the rate of HSA adoption by your employees. If your adoption rate is less than ten percent, something is wrong with your plan design.
First year HSA adoption rates by employees among companies that properly design their HSA, and give employees a choice of other plans, ranges from 25% to 45%, but some have been as high as 72%.
With that preamble, here is the number one most lethal and common mistake employers make when implementing an HSA: the employer does not fund the health savings account.