Emerging best practices around HSA design and administration

The Plan Sponsor Council of America’s (PSCA) 3rd Annual HSA Benchmarking Survey reveals some consistent trends emerging.

With three years of data now, PSCA’s annual HSA survey reveals some design and administration trends. Even as best practices regarding the administration of the HSA program are starting to emerge, many organizations do not have a formal program, leaving employees enrolled in high deductible health plans to set up and manage the HSA account on their own. And, while three-quarters of employers offer health options in addition to the HSA-eligible option, in almost 70% of small organizations, the HSA health option is the only option, and many of these employees are left on their own to understand the intricacies of a health savings account.

The PSCA conducted its 3rd annual HSA benchmarking survey in early 2021 to examine how employers structure HSA programs, their use by employees, and their potential as retirement savings vehicles. The survey received responses from 191 plan sponsors with a formal HSA program for employees. For these organizations, the trends show that most make membership fees, offer investment options, and pay HSA-related fees.

Despite gains in other areas, the primary concern of employers with their HSA program remains the education of participants. Over 80% of employers cited employee education as a major concern of the HSA. The top education priority for over 60% of survey respondents is explaining HSA tax preferences, followed far behind by explaining contribution limits.

Setting up an HSA can seem daunting to employees, and indeed, when given a choice, nearly half of employees choose something other than the HSA-eligible health option. We know that HSAs can be a powerful tool for additional retirement savings, but if we want people to use them as such, they need the education and support to do so. We must continue to find new ways to educate employees about the huge tax benefits of HSAs, while making it easier for them to sign up.

A summary of the data from the full report follows.

Top 10 highlights

  1. The average participant contribution in 2020 was $ 2,958, compared to $ 2,595 in 2019 and 2018. However, about a quarter of responding employers noted that less than 5% of workers maximum contributed.
  2. The average account balance at the end of 2020 was $ 6,318, up from $ 5,627 in 2019.
  3. Most employers (83.2%) make contributions to the HSA, including three-quarters of small organizations and over 90% of large ones.
  4. The vast majority of organizations surveyed (84.4%) offer investment options for HSA contributions.
  5. Almost 20% of participants invested assets in 2020, representing almost 30% of all HSA assets.
  6. Over 80% of employers cited employee education as a major concern of the HSA, consistent with previous findings. Top secondary concerns compete for compliance, Medicare eligibility, and difficulty of administration.
  7. The top education priority for over 60% of survey respondents is explaining HSA tax preferences, followed far behind by explaining contribution limits (13.2%).
  8. Thirty-five percent of organizations automatically enroll their employees in the HSA if they enroll in the HSA-eligible health option, up from 32.2% in 2019.
  9. Less than 40% of employers position the HSA as a retirement savings instrument.
  10. Two-thirds of organizations cover the cost of HSA maintenance themselves. Fees are typically assessed monthly (79.4% of plans) and cost on average less than $ 3 per month / participant.

Eligibility and participation

Almost 80% of employers offer health options in addition to the HSA qualification option, although there is some variability depending on the size of the organization. Among employers who offer multiple options, nearly 40% say more employees choose the HSA-eligible health option, while 45.7% say more employees choose the other (s). See appendix 1.

Exhibit 1: Rate of use of the option eligible for the HSA compared to other health options

All

The HSA option is the highest

38.4%

The other options are higher

45.7%

About the same

11.6%

Uncertain

4.3%

Total

100.0%

Almost 60% of employees signed up for the HSA qualifying health option when offered the opportunity. Of those who did, 85.1% had an HSA in 2020 and 81.1% contributed to their account. See appendix 2.

Exhibit 2: HSA participation over time

Participation measurement

Year

2018

2019

2020

Percentage of eligible employees who have enrolled in the HSA qualification option

53.7%

61.3%

58.6%

Percentage of HSA-eligible option registrants with an HSA

90.7%

90.5%

85.1%

Percentage of employees with an HSA who contributed to it

85.7%

91.1%

81.4%

The average participant contribution in 2020 was $ 2,958, up from $ 2,595 in 2019. The average account balance at the end of 2020 was $ 6,318 and the median was $ 3,543, a slight increase from the average of $ 5,627 and the median of $ 3,169 reported in 2019. See appendix 3.

Exhibit 3: HSA Accounts Over Time

Year

2018

2019

2020

Average participant contribution

$ 2,595

$ 2,595

$ 2,958

Average account balance

$ 5,239

$ 5,627

$ 6,318

Over a third of organizations automatically enroll their employees in the HSA if they enroll in the HSA-eligible health option.

Employer contributions

Most employers (83.2%) contribute to the HSA – almost three-quarters of those offering a fixed amount depending on the level of coverage (individual or family). See appendix 4. More than a third of employers “take” contributions at the start of the year, while nearly 40% make contributions each pay period.

Table 4: Percentage of organizations that contribute to the HSA

Organization size (total number of employees)

1-49

50-199

200-999

1,000-4,999

5,000+

All

Percentage of organizations

77.3%

75.9%

79.7%

91.5%

91.3%

83.2%

Investments

The vast majority of organizations surveyed (84.4%) offer investment options for HSA contributions beyond a cash equivalent or money market fund. However, 78.4% of organizations require a minimum balance of $ 1,000 or more before assets can be invested. Almost 20% of participants invested assets when given the option. And nearly 30% of all HSA assets are invested in something other than cash or cash equivalents. See appendix 5.

Figure 5: Average percentage of participants who invested and percentage of invested assets

All

Average percentage of participants who have invested assets

19.3%

Average percentage of assets invested in something other than cash

28.7%

Education

The majority of organizations (56.6%) primarily educate employees about HSAs each year during open enrollment. However, a quarter provide education throughout the year. The dominant topic targeted by HSA education was understanding the tax benefits of HSAs, which were rated as primary by over 60% of respondents.

Less than 10% of organizations use or suggest a default savings rate to employees for their HAS, and 6% offer additional training to employees who do not contribute to the HSA or only contribute a nominal amount.

Almost 40% of respondents indicate that they position the HSA as part of a retirement savings strategy for employees; 11% are not currently, but plan to do so.

Almost 80% of respondents indicated that employee training is a top concern, with almost two-thirds of respondents indicating that it is their main concern regarding their HSA programs. See the exhibition 6.

Exhibit 6: Primary and Secondary HSA Concerns

Worry

Primary

Secondary

Primary or Secondary

Difficulty of administration

10.8%

12.8%

23.6%

Compliance

7.8%

19.9%

27.7%

Employee education

63.3%

16.0%

79.3%

Employee Funding Resources

4.2%

11.5%

15.7%

Investment options

3.0%

12.2%

15.2%

Fiduciary responsibility

6.0%

9.0%

15.0%

Eligibility for Medicare

4.2%

17.3%

21.5%

Other

0.6%

1.3%

1.9%

HSA fees

Over 60% of organizations pay HSA maintenance fees for active employees, although in 29% of responding organizations, the participant is responsible for these fees. Most fees are paid monthly (71%) and average less than $ 3 per month.

The PSCA’s 2021 HSA Benchmarking Survey is available free of charge, thanks to the generous sponsorship of Empower Retirement and Optum Financial. Access the report on: https://www.psca.org/research/HSA/2021report.

Hattie Greenan is Director of Research and Communications for PSCA.


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