Insufficient Funds… When HSAs Aren’t Enough to Cover Deductibles

March 1st, 2021

Many employers offer Health Savings Accounts (HSAs) as a component of their health plans. Some will even offer to contribute, or match employee contributions, as an extra incentive to take advantage of this benefit. Theoretically, contributing to an HSA should help employees cover out-of-pocket medical expenses, including their deductibles. 

Ideally, employees wouldn’t have to use this account to cover healthcare expenses at all, but instead, would be able to take full advantage of this triple-tax-advantaged retirement savings vehicle: They would contribute the maximum amount, invest those funds, and then watch them grow over time. 

And for a small percentage of working Americans who are in the position to do so, HSAs are an excellent way to increase financial wellness and build long-term wealth. But for the vast majority of Americans with HSAs, this is not the case. Most account holders (over 80%) are not in a financial position to contribute the maximum amount to their HSA, much less let those funds accumulate over time. 

In fact, an overwhelming majority of people do not even have enough money in their HSAs to cover a single year of deductibles: Roughly 78% of people with High Deductible Health Plans have an HSA balance that is less than their deductible. 

HSAs are supposed to help your employees afford their medical expenses and give them a way to build financial wellness over time. You might have even used this argument to encourage your employees to opt into an HDHP. But for many Americans, the math doesn’t add up. If your goal is to help your employees get the healthcare they need and improve their financial wellness, here’s what you can do. 

HSA Utilization: Ideal vs. Reality

To illustrate the reality of HSA utilization, let’s do a little math:

The maximum contribution amount for HSAs in 2021 is $3,600 for those with individual coverage and $7,200 for those with family coverage.

In order to be considered a High Deductible Health Plan, a plan must have a minimum deductible amount of $1,400. However, the average American pays considerably more: $2,303 for a single plan, and $4,552 for a family plan, according to Kaiser Family Foundation. 

So, theoretically, if an employee were to contribute the maximum amount in one year, they should have sufficient funds in their HSA to cover their deductible the following year, and moving forward. (Using these figures, an individual would have $1,297 leftover after paying their deductible, and a family would have $2,648.)

Eventually, this person should be able to invest a percentage of their HSA balance without having to worry about whether they’ll still be able to afford their out-of-pocket expenses.

Of course, this assumes that the employee can afford to contribute to their HSA and let it sit there long enough to accumulate. For higher-income employees, this might be achievable.

But research into HSA utilization shows that very few people are in the position to take full advantage of the benefits of HSAs: A mere 7% of HSAs contain investments outside of cash. And even among those who invest, most people still take distributions from their HSAs, which suggests that incredibly few people are actually able to afford to use their HSA to build long-term wealth.

Meanwhile, a staggering amount of people with HDHPs (almost 80%) don’t have enough in their account to cover a single year of out-of-pocket medical expenses. They either cannot afford to let money sit in their HSA, or use their HSA as a cash equivalent to cover medical expenses -- and still come up short.

What to Do

Ideally, you want your employees to be able to afford their deductibles and utilize their HSAs to increase their financial wellness over time. 

But in order for this to happen, they have to be able to afford to pay for their out-of-pocket medical expenses -- without resorting to toxic payment methods like credit cards or payday loans. This is where Paytient steps in. 

Paytient is an employer-sponsored payment platform for employees' medical expenses. Paytient works alongside any existing health plan to give your employees greater flexibility in how they pay for their care.

Whether your employees are unable to afford their deductibles, or are unable to take full advantage of their HSAs, Paytient can help:

Help employees afford their deductibles (without financial harm)

For employees who are struggling to afford out-of-pocket medical expenses (who are likely not contributing to an HSA), Paytient provides greater flexibility by providing an interest-free way to pay their bills over time. With Paytient, these employees are less likely to defer or postpone getting the care they need, reducing your large claims risk as an employer. Offering Paytient to these employees can help them avoid going into debt in order to afford their care, setting them up for greater financial security down the road.

Help employees take full advantage of their HSAs

Paytient can also improve the financial wellbeing of those who can afford to contribute to their HSA: By providing an interest-free way to pay their out-of-pocket expenses in cash, Paytient helps to safeguard their HSA balance, allowing it to grow over time. 

Get Started with Paytient

In an employer-sponsored system, the burden lies on the employer to make healthcare affordable for employees. Contributing to employee HSAs is certainly one way to help put deductibles within reach. But offering greater flexibility in how employees pay for their care with Paytient can take your employees even further.

The research points to the fact that many employees might not fully understand how to incorporate their HSA into their long-term financial plans. In addition to offering Paytient, additional education on behalf of the employer could help to encourage better utilization of this tax-advantaged account.

Get started today!

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