America's Benefit Specialist August-September 2022

HSA s

needed to ensure their plan design incorpo rates the most effective strategies available to address today’s economic challenges to the “health and wealth” of their participants. EXPECTATIONS FROM SECOND-QUARTER GDP Changes in Gross Domestic Product are the most frequently used indicator to validate the nation’s overall economic health. Real GDP decreased at an annual rate of 1.6 percent in the first quarter of 2022, accord ing to the “third” estimate released by the Bureau of Economic Analysis. The second quarter GDP will confirm that we are in recession if there is another quarter without growth. The first estimate was due on July 28. A widely followed gauge from the Federal Reserve Bank of Atlanta is indi cating that the U.S. economy is headed for a second successive quarter of negative growth—currently estimated at -1.2%, which would meet the rule-of-thumb defi nition of a recession. 2 Inflation has outpaced wage growth. Through June, average real weekly earnings are down 4.4% over the past 12 months— from the combination of inflation and a reduction in the average number of hours worked. That’s the largest reduction in real wages since the 1970s. The Producer Price Index program measures the average change over time in the selling prices received by domestic producers for their output. The PPI rose 11.3% from a year ago in June. This suggests that inflation for consumers will continue to increase in 2022. June health-plan renewals saw high single-digit increases for 2023. However, more recent anecdotal data suggests many plans, perhaps most, will see double-digit increases for 2023. THE VALUE OF AN HSA STRATEGY Even though most employer-sponsored health plans maintained a modest level of cost shar ing, a five- to six-percent per year increase

IN ALMOST ALL RESPECTS, DONE RIGHT, HSAs PROVIDE A SUPERIOR VALUE WHEN COMPARED TO 401(K) AND 403(B) PLANS, AS WELL AS FSAs.

in employee contributions and deductibles has doubled costs, in nominal dollars, since health reform became law in 2010. Healthcare inflation is impacting both employee contri butions and out-of-pocket costs. Increasingly, health-plan sponsors have adopted strategies and designs that enable members to proac tively build medical savings. The HSA has evolved to become part of a rewards strategy capable of “quadruple duty”: • Fund current and future year medical costs. • Fund Medicare and long-term care pre miums and out-of-pocket medical and LTC costs in retirement. • Provide an income in retirement without tax penalty (after age 65). • Serve as a survivor or legacy benefit—un used monies are passed on to designated beneficiaries. When it comes to employer-sponsored benefits, HSAs offer the most utility. In al most all respects, done right, HSAs provide a superior value when compared to 401(k) and 403(b) plans, as well as FSAs. HSA assets receive America’s most valu able benefits tax preference: Contributions are pre-tax for federal income tax purposes, same for most state income taxes, as well as FICA (Social Security) and FICA-MED (Medicare). Earnings accumulate tax-de ferred and payouts for eligible medical expenses are tax-free. More medical expens es qualify under HSAs than under FSAs. Unlike FSAs, there is no use-or-lose or forfeiture provisions. Unspent money rolls over from year to year.

IMPLEMENTING AN HSA SOLUTION Adding an HSA option can create a com petitive advantage for both the employer and participants. How an HSA is imple mented will significantly impact enroll ment and utilization. Both plan sponsors and participants are still learning the benefits of HSAs. Educa tion should focus on the advantages and clear rewards—both now and in the future. Health-plan sponsors should consider how HSA-capable coverage is communicated to employees to fuel greater adoption and optimization of these accounts. Where offered as a choice alongside a more traditional PPO option, the challenge of an HSA is getting workers to focus on the differences in contributions, deductibles and employer support—including contributions to the HSA. This challenge often arises when an employer simply adds HSA-capable cov erage as an alternative to a traditional PPO and/or HMO option without any education nor any adjustments or transitions. Another challenge comes from misnam ing the HSA coverage option—too many use the term high-deductible health plans . This focuses an inordinate amount of attention on the deductible. It can lead employees to believe that that plan is more expensive and disincentivize them from enrolling. A way to reframe employee perception is to shift the focus to lower monthly premiums and refer to the option as HSA-capable, HSA-eligible or as a “consumer-driven” health plan. One strategy employers use is a full-pos itive annual enrollment. When individuals elect medical coverage, using the HSA-

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