An employee benefits strategy that balances cost and care

As we covered in Part 1: The connection between money and health, employers are often trying to balance the complex, rising cost of health care and a benefits package that supports and retains their employees.

A common approach to managing rising health care costs is to reduce the organization’s overall medical spend because, like any insurance, the more you use it the more premiums can cost when you renew the plan.

While employees are sensitive to rate changes, they may not realize that employers often pay the majority of health plan premiums and the individual pays only a portion of the costs via payroll deduction. That means that high premiums are costly for both the organization and the individual.

To keep costs low for everyone while still providing strong benefit coverage, many employers choose to offer a popular combination of a health savings account (HSA) paired with a low-premium/high-deductible health plan or an HSA with a self-funded medical plan.

In addition to having lower premiums, this combination of benefits creates an opportunity to drive behavioral change by altering the way employees approach health care expenses.

In our research on HSA attitudes and perceptions, we learned that many individuals who change their behavior attribute it to an increased understanding of their HSA and viewing their benefits as “spending their own money,” which makes them want to stretch their dollars as far as they can.⁴

To help our clients evaluate their HSA plans, we look closely at two types of HSA users:

• HSA beginners: Contribute the average amount or rely on the employer contribution and spend most of their balance
• HSA pros: Have a high balance, save 50% of their contributions and/or invest part of their balance

We regularly find that HSA pros have lower overall medical spending and increased positive health care behaviors. While every organization is different, we see similar trends within industries.⁵

In addition to managing health care affordability, employers are often looking for ways to support wellness in their employee population, which leads to the question — what is the role of money in your employees’ health outcomes?

In a Kaiser Family Foundation report, many individuals shared that the potential of high out-of-pocket costs may influence them to skip health care services, such as high-priority office visits, medications for chronic conditions and clinical preventive services.⁶

To further understand the connection between money and health, we conducted a longitudinal study for a large national health insurer of 246,000 individuals enrolled in an HSA over 2 full years, utilizing claims data, artificial intelligence and other data sources to develop a predictive model.⁷

This proprietary Optum predictive model measures each individual’s health care needs in the next 12 months by assigning:

• Total health care cost risk score
• Inpatient hospital risk score

The results suggest that using an HSA can influence improved health outcomes because individuals with high HSA engagement (HSA pros) show patterns of proactively managing their health and saving for future health-related expenses.

When you dedicate your time and talents to developing an organizational benefits strategy, you want to see your colleagues have a healthy, happy and well supported retirement — which includes having money to pay for health care.

The estimated cost of health care in retirement is high.

HealthView Services predicts that health care for a healthy 65-year-old couple in the first year of retirement costs around half of their Social Security income, and if they live to age 77 (the U.S. average life expectancy), costs increase to spend their entire Social Security income.⁹

Employees are often surprised that HSAs offer a triple-tax advantage, compared to the double-tax advantage of 401ks. The triple-tax advantage means:

• Money contributed to an HSA isn’t taxed
• Earned interest and potential investment growth is tax-free
• HSA money spent on eligible expenses isn’t taxed

The average HSA balance for those who invest at least part of their HSA funds is 6.7 times larger than for those who do not invest, which demonstrates the potential for HSA investment growth.¹⁰

HSAs are well-suited for retirement savings because you can use HSA dollars to pay for eligible expenses at any time, including for individual health care premiums if you retire before you’re eligible for Medicare and for Medicare Advantage premiums after that.

It’s also not commonly known that after age 65, account holders can use their HSA dollars for anything — just keep in mind that withdrawals for non-qualified expenses are subject to ordinary income tax.

Optum Financial health savings accounts⁵ compare favorably to industry averages.¹⁰

• HSA contributions: industry average $966 | Optum Financial average $1,041 (+7.8%)
• HSA balance: industry average $2,872 | Optum Financial average $3,181 (+$11%)

To grow savings even faster, we offer investment options for every kind of investor — including digitally managed funds for employees who want to set it and forget it, mutual funds that provide convenient diversification and self-directed brokerage accounts for savvy investors.

Some clients are acutely focused on preparing their employees for health care expenses in retirement. They want to consider conditions their employees have today, life expectancy, costs over time and then forecast how much their employees should save in their HSA to cover long-term costs.

To perform this kind of analysis, we look at turning HSA beginners into HSA pros, layering in health claim history to support better health outcomes and an additional tool in our toolbox — the Health Savings Checkup tool, which creates personalized estimates for health care costs in retirement.

For example, a client wanted to look at 2 health plans they offer and fine tune their benefit plan designs and employer contributions to get their employees to saving enough or nearly enough in their HSAs to cover their estimated retirement health care costs.

When we looked at the client’s employee population, we worked with them to develop a custom communication program tailored to effectively reach their employees. Over a period of 5 years, the program increased the percentage of their employees who are HSA pros from 7% to 49%.

Then we looked at their health plan claim history data, the leading health conditions across their employee populations and our health savings checkup tool to inform their plan design.

While every organization and their employee populations are different, there are some common themes. Lean on your benefit partners to help you find the right approach to achieve your organization’s benefit objectives and overcome challenges.

We’re continually researching and learning about consumer behaviors and preferences to meet individuals and families where they are and give them what they need, when they need it.

As Tami Eckstein, VP of Optum Financial client relationship management, says “We have a relentless pursuit of pioneering the connection between health savings and the ability to drive better health outcomes.”

Next up, health savings pathways part 3 will share actionable steps employers can take to evaluate and advance their benefits strategy.