The COVID-19 pandemic has hit U.S. businesses hard, and many companies are struggling to keep the doors open while also dealing with new compliance issues, remote workers and rising costs. While looking to cut unnecessary spending from their budgets, employee health care is one area for potential savings. But according to a report from Aite Group, health benefits accounts might be safe–for now. “The COVID-19 Pandemic’s Impact on the Health Benefit Account Industry” compiles the results of interviews conducted in April 2020 with 25 HR executives across small businesses, middle-market and large-market employers, health benefit brokers, and benefit administrators.
“COVID-19’s economic impact has prompted employers to take decisive cost-saving measures, impacting group insurance plans and health benefit accounts,” says Inci Kaya, senior analyst at Aite Group.
While employers are turning to furloughs and pay cuts and suspending 401(k) matching, one area they’re not touching is health savings account contributions. “The lesson that the COVID-19 pandemic offers for HSA investment funds is that they should be viewed in a different light than 401(k) plans,” the authors note. “They should not attempt to mirror 401(k) plans but should rather be cognizant of the fact that account holders may need to access the funds in those investments in the shorter term.”
The report notes that, for now, HSAs are actually seeing a decrease in spending utilization, as more consumers delay medical care and limit spending to essential expenses. Withdrawals may outpace expenses later in 2020. If pay cuts and furloughs are not successful and companies are forced to lay off more people, there will be no new account openings and there will be an increase in “unaffiliated” HSAs (an account that is no longer tied to an employer).
Flex spending accounts (FSAs) and health reimbursement accounts (HRAs) are also seeing some impact as a result of the pandemic. FSAs, which can go beyond covering health care costs to address child care and commuter benefits, are being impacted by the growing number of employees working remotely and reducing their contributions in these areas. Aite’s outlook for 2020 health care FSAs remains unchanged overall, as will the 2021 outlook, absent any significant legislative changes.
The Aite report notes that HRA accounts are not a high priority for employers right now and are essentially being left on autopilot, or up to the brokers and administrators to handle any decisions that need to be made in this area. This is one area of health spending accounts the authors see potential for growth in in 2021, however, given the recent introduction of the individual coverage HRA (ICHRA) and the potential administrative savings for employers during a time when budgets are tightening.
Health plan administrators will have a busy few months ahead of them. The current employment climate could provide a second opportunity to get employees enrolled on their spouse’s plan, as an estimated 34% of the 24 million employees who are laid off qualify for a “life-changing” event that will give rise to a chance to switch plans, according to the report. And as the unemployed find new jobs, the report found that potential upside opportunities exist for account growth over the next two benefit cycles.
And since most health plans have already been negotiated for 2021, without COVID-19 factored in, the impact on most health insurance premiums won’t be felt until 2022, the report says, giving HR managers time to get a feel for the full economic impact of the pandemic. (The report does add the caveat that there is still the possibility of a recurrence of COVID-19 just as the 2021 enrollment period takes place.)
Plan administrators have an opportunity during the pandemic, the report finds, to provide guidance to brokers, employers and employees on “key messages” of HSAs: Reiterate the tax-free nature of funds, cost-sharing implications, or utilization for (qualified) health expenses. “Health benefit providers, third-party administrators, and financial wellness providers will be instrumental for employers as they navigate the foggy path of regulation and health insurance premiums, and explore innovative digital care delivery,” Kaya says.
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