Client: Security Health Plan (HR Playbook)
Any time you introduce change in a company, employees are going to have questions and concerns. That’s especially true when it comes to changes in health insurance coverage.
As a human resources professional, you’ve likely done extensive research and have a solid understanding of the coverage your company provides, but it’s also important to be able to explain the changes to workers while highlighting the positives.
The use of high deductible health plans (HDHP) with a health savings account, or HSA, continues to grow and will likely become an even more common option. Many companies are choosing to offer these types of benefit plans as a way to offset premium increases. This is an advantage to both the business as well as employees, and it should be one of the first benefits of this type of coverage that is explained.
HDHPs with HSAs are a common type of “consumer-directed” plan. This simply means that more decision making, control and responsibility for health expenses are put in the hands of the member or employee.
According to the Large Employers’ 2017 Health Plan Design Survey from the National Business Group on Health, 84 percent of those surveyed are providing at least one type of consumer-directed plan and 35 percent will only offer such plans.
However, even though HDHPs with an HSA are becoming more commonplace, many people still need help understanding how they work and why they can be an appropriate option.
Changes in health insurance benefits can be a stressful time for both human resources and the rest of the company, especially during open enrollment. In fact, a Harris Poll commissioned by the HR software company Jellyvision, indicates nearly half of employees feel stressed out by making health insurance decisions and 56 percent want more advice and assistance from their employer.
If your company is considering or planning to implement HDHPs with HSAs, here are some steps for human resources to follow that will help make everything go smoothly. These steps will also help you explain this type of coverage to new employees who are unfamiliar with such plans.
Step 1: Define everything in simple terms
The first step is to quickly and easily describe this type of health insurance plan without using too much technical jargon.
Try something like this …
A high deductible health plan is meant to give you more flexibility and control over your healthcare spending. It allows you to create a plan that meets your family’s needs and comes with many of the same benefits as a traditional plan. While your deductible will be higher, your premium will be lower, which means you have access to more money from your paycheck.
When you’re covered by an HDHP, you can open a tax-free health savings account. Then you can use your HSA funds to pay for any qualified medical expenses, including prescriptions, hospital bills, as well as dental and vision services.
Step 2: Explain the way it works
Now that the employee understands the basics, he or she will likely have some questions about the specifics of HDHPs with HSAs. The answers to those questions may depend on your company’s coverage, but here are some questions to expect.
What happens after an employee meets the deductible?
In many cases, 100 percent of health costs are covered after an employee meets the deductible. However, some plans continue to have copays for certain items or services.
Where does the HSA money come from?
You can explain that HSA funds work a bit like contributions to a retirement account. Make sure to clarify that funds will be automatically withdrawn and deposited from their paycheck based on the amount the employee wants to contribute per pay period.
Generally, the employer identifies a financial institution where the account will be set up. The employees will receive a debit card connected to that account, which should be used for approved medical purposes.
You should also inform employees about contribution limits for individuals and families, with exceptions for people who are at least 55 years old. These limits are set by the IRS and may change slightly from year to year. For instance, in 2017, the maximum amount for individuals rose $50.
Get the latest HSA limits from the IRS.
How much should employees contribute to the HSA?
The answer to this question depends on each employee’s health situation and medical needs. It’s helpful to suggest how your employees can budget for known medical expenses while making sure to set aside funds for unexpected medical costs.
An HSA is an account that allows for tax-free savings but should also be viewed as an emergency fund to cover healthcare costs that come up through the year. That could include anything from a broken arm to sinus infections.
Let employees know they have the right to adjust the contribution amount that goes into the HSA at any time, and they can even deposit money into the account on their own. However, only the portion within the contribution limit will be tax deductible.
What should they expect at tax time?
The first time someone files income taxes after qualifying for an HSA, there will be some additional steps. Explain that the total amount deposited into the HSA will appear in Box 12 of the W-2 form. If the employee made contributions outside of what the employer deposits as a payroll deduction, they will also receive a Form 5498-SA.
The employee will need to include Form 8889 to report contributions and withdrawals, which can be found in a Form 1099SA from the HSA administrator. Tax preparation software usually walks people through all of this.
Remind employees that it is a good idea to keep receipts and invoices of medical expenses for their records.
Employees should be aware that funds in an HSA can be used for non-medical purposes if necessary. However, that income becomes taxable if it is not spent on medical expenses and should be reported to the IRS.
Step 3: Describe the benefits to the employee
Some people are less-than-excited about switching from a traditional HMO or PPO to an HDHP with an HSA. The Harris Poll mentioned earlier found that 68 percent of employees it surveyed think HDHPs are more expensive, and 30 percent describe the plans as “risky.”
At the same time, more than half of respondents admitted they aren’t knowledgeable about this kind of health insurance coverage.
The job of human resources may be to highlight the positive aspects of HDHPs with an HSA, of which there are many.
Benefits for healthy employees
HSAs are a good option for people who are younger, in good health or simply don’t need to use health insurance very often. These people benefit because the lower premiums of an HDHP keep more money in their pockets and also provide the advantage of the tax-free savings account.
Benefits for employees with costly medical needs
Conversely, HDHPs can benefit people with chronic illnesses or extensive known medical expenses. That’s because they will likely hit the deductible early in the year. And, after that, their medical costs will be covered.
If an employee knows there will be large medical bills during the course of the year, such as the birth of a baby or major surgery, he or she can plan ahead to meet the deductible.
Employees will never lose the money
An important difference between HSAs when compared to flexible spending and health reimbursement accounts (HRAs), is that your employees don’t need to use up the funds within the year. Money in an HSA rolls over year after year. So, it’s never “use it or lose it.”
Likewise, the money follows the employee if they ever leave the company, it can be rolled over into a different account, and any interest earned on the funds is also non-taxable.
Can be used as a form of retirement savings
The tax benefits of an HSA make it another great option for building savings. For example, if you have funds left in your account that you never use for medical expenses, you can withdraw that money and use it during retirement.
Employees will need to pay income taxes on that money. However, they will not pay any penalty. So, the HSA can function much like a traditional IRA.
Step 4: Go over the math
You may still have some skeptics in your organization, even after explaining all these benefits.
That’s often because employees initially get hit with a large medical bill, which makes them feel like they aren’t being treated fairly. It can help if you review the math with them to compare the savings of lower premiums over the long run.
Put together some hypothetical examples that illustrate the benefits and compare and contrast the differences to other options. SHRM.org offers this advice for human resources in an article titled How to Explain High-Deductible Plans.
“Make it easy for workers to evaluate high-deductible health plans against other employer-provided plans so they can compare what really matters to them — cost. Keep it simple: Vary only the upfront cost elements, such as premiums, deductibles and out-of-pocket maximums.”
Get more advice from SHRM on explaining misconceptions about HSAs during open enrollment.
Step 5: Help them make the right decision
Finally, your employees will appreciate any additional advice you can give them, especially if they are unfamiliar with this kind of plan. You may need to talk things through, like budgeting for health expenses, to help them understand what they should consider.
An HDHP with an HSA certainly gives an employee more flexibility and control, but it also adds responsibility, because employees need to be more aware of their health expenses. That can be a lot of pressure at first.
Explain how they will need to shop wisely for their healthcare needs. Healthcare providers often have widely differing costs for the same procedures. For example, an MRI could cost $200 in one location and $2,000 in another location. Not every dentist fills cavities for the same price and choosing the generic form of a prescription drug could be much more affordable.
Employees will need to get in the habit of doing some extra research to find the options that are best. Wisconsin employers can help by pointing workers to online resources like Wisconsin PricePoint. This website aims to add transparency to health care by letting people compare costs for common services at hospitals in the state.
What to do when you have questions …
There could be a time when you don’t have all the answers to employee questions or situations when you have questions of your own.
In those cases, it is essential to have an insurance carrier with exceptional customer service that can provide the knowledge and experience you need. Our website’s sponsor, Security Health Plan, prides itself in helping employers navigate their benefits.
You can call Security Health Plan at 1–800–622–7790 between 8 a.m. and 5 p.m. Monday through Friday. Contact Security Health Plan to find out more about employer coverage, serving businesses in Central Wisconsin, Northern Wisconsin and now with plans designed for the Fox Valley region in Northeastern Wisconsin.