Are HSAs and IHRAs Good for Financial Health?

Thursday, March 5, 2020

By Nadia van de Walle, Director at Financial Health Network

Many families are faced with making tough healthcare decisions because of financial challenges. According to the 2019 Financial Health Pulse study, one in four Americans did not get healthcare and almost one in five stopped taking medication in the last year because they could not afford it.

With these challenges in mind, the Financial Health Network is taking a closer look at the role employers play in supporting employees struggling with rising healthcare costs. As more employers take an interest in improving worker well-being, health savings accounts (HSAs) and individual coverage health reimbursement arrangements (IHRAs) are both emerging as potential solutions. HSAs have grown in prominence as more employers offer high-deductible health plans (HDHP). In addition, IHRAs are a new option in 2020 to provide healthcare coverage for employees.

We used the Financial Health Network Compass Principles, a set of quality standards for products and services that support financial health, to assess both tools. Through that analysis, we found the following opportunities:

  • Providers and employers must provide more user-friendly guidance about HSA and IHRAs. Research from WEX Health, a Financial Health Network Member, has uncovered significant confusion among customers in relation to HSAs, ranging from terminology to how to use the plans themselves. WEX concludes that it is not enough to expect customers to self-educate. Employees must understand topics like dependents’ eligibility, planning for lack of portability upon leaving an employer, and payment options to use HSAs effectively. Very often, they do not. Employers planning to roll out IHRAS should also include easy-to-understand tools to help employees navigate the dizzying number of new choices they would face.
  • HSAs could increase savings, but eligible employees are often underenrolled. Many employees who could take advantage of HSAs are not opting in to these plans; employers need to investigate why and how their healthcare offerings could be better tailored to support employee financial health. Employers may also want to consider whom they are excluding and how to make inclusive adjustments. For example, some research shows that HSA benefits may risk leaving out low-income families because they are less likely to be enrolled in products associated with HDHPs.
  • Enrollees are not always using HSAs to support long-term savings. Many employees faced with day-to-day savings challenges do not make regular, up-to-the-max contributions to their HSAs, using them instead as checking accounts for medical expenses and therefore missing out on tax incentives and longer-term savings. Unfortunately, some also find themselves needing to draw down on their HSAs for emergency, non-healthcare related expenses and facing tax penalties.
  • Without guidance, IHRAs could harm employees’ financial health if they offer only costlier, lower-quality healthcare options on the individual market. An employer who switches from the group health insurance market to IHRAs will shift employees to the underdeveloped individual market. Options in this market vary greatly by state and have been less stable overall, often struggling with a lower supply of insurers and providers, lower quality ratings, and higher costs. The status quo might improve as more people sign up for the individual market. Regardless, businesses that care about employee financial health must view offering IHRAs as more than simply writing a check and take responsibility for helping employees make intelligent choices in this new arena.

Employers and others who evaluate options such as HSAs and IHRAs should use financial health as a North Star as they consider how to launch and implement those products. HSAs and IHRAs have the potential to give employees more options that are tailored to their needs. New products should create pathways to improved financial health and reduce barriers to healthcare. In particular, employers who seek to support employee wellness should focus on improving their accompanying guidance, particularly for brand-new products, and pilot tactics for educating and empowering customers to navigate their health spending successfully. By measuring and analyzing employee financial health data and taking the time to learn about worker experiences and needs, employers can better understand the risks and opportunities as they seek to support physical and financial health for their workers.

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