In light of health care reform and health plan re-design issues, a lot of employers are looking at high deductible health plans and health savings accounts to give people additional options. The idea is that if you add a high deductible plan (HDHP), then employees can set money aside to offset deductibles and co-pays in separate health savings accounts (HSAs). It's a fundamental re-design of the plan, and the issues employers are facing are complex technical and design and compliance issues.
For example, one question that arises immediately is whether the employer should migrate only to a HDHP design (with HSA), or also continue to provide a low deductible health plan (LDHP) as an alternative without a HSA. For employees, there's a trade off between a higher premium for the LDHP, as opposed to a lower premium for the HDHP with more out of pocket costs -- which can be offset with the HSA.
Problems come in when you want to migrate people from one environment to another. For example, if we have an existing LDHP with a traditional Flexible Spending Account (FSA), that structure might make people ineligible for HSAs in certain circumstances. How do you adjust for that if the employee would like to choose coverage under the HDHP/HSA option? Another issue that makes implementation difficult is dealing with the uncertain implications for employees who want to make changes during the year due to changes in life status. Will employees be allowed to change from the LDHP to HDHP (or vice versa) and, if so, what are the HSA implications?
For employers and their advisers, the primary difficulty is that the legal environment is one in which there are lots of questions but very few specific answers. Although there are many IRS notices and other rulings on HDHP/HSA matters dating back to 2004, and they answer a number of important questions, there is not one comprehensive place to go for practical answers to the many different fact patterns employers encounter.
On the practical level, an important question relates to how much education employers will provide for HSA-eligible employees. For example, should the employer tailor payroll systems to automatically contribute the appropriate amount (up to the family limit, single limit, or catch up limit for HSA contributions) or leave it up to the employee to figure out how much he or she can contribute? Some companies have a paternalistic philosophy and want to educate their employees, walk them through the options, and prevent them from doing the wrong thing. However, in doing this, a number of technical problems and difficulties arise – for example, when deductions need to be re-calculated when an employee switches from family coverage to single coverage during the year. If the employer tries to "do the best thing" for the employees, it is not entirely clear how the adjustment should be made. So, the "best" thing to do might be to let employees make the adjustments that they feel are best for them.
This is going to be an increasing trend over time because health care costs are going up and employers need to do something to moderate their health care costs. In 2018, health care reform implements a 40% excise tax on so-called "Cadillac coverage." Unless an employer does something to moderate such "overly generous" plans, there could be a significant cost down the road. To mitigate the exposure to that tax, a HDHP/HSA strategy might be an appropriate strategy.
The bottom line is that before employers go down this road, they need to make sure they have adequately vetted these technical and compliance issues.
