6 minutes
It seems you can hardly look around today without tripping over an article about the state of American healthcare, health savings accounts, or Millennial-related trends. The Affordable Care Act is still a political hot button and is certain to move even more firmly into the spotlight given the upcoming presidential elections. However, what has not been evaluated is the impact of HSAs in the health insurance paradigm shift the U.S. is currently undergoing.
Consumers’ perspective on healthcare coverage is evolving, and millennials stand to be impacted significantly by the shift. As the generation looks to expand into the largest segment of the U.S. workforce, your credit union has the opportunity to capitalize on the new perspective by introducing HSAs into your product line.
Millennial Expansion
Recent data from the Pew Research Center shows that in 2015, Gen Y caught up to Generation X as the largest generational segment in the workforce at 53.5 million strong. When you consider how many millennials are still in college or looking for their first jobs, that number will expand rapidly in the near term. By 2020, millennials will be half the workforce and by 2025, they will constitute 75 percent of the workforce.
The landscape of employer-offered health insurance is changing just as rapidly, with large scale migration to high deductible health plans by employers of all sizes, and the advent of defined-contribution health insurance. Coupled with the ACA mandate for individuals to carry health insurance or face tax penalties, it’s a recipe for growth in HSAs beyond the already exponential evolution we’ve seen since their inception in 2004.
Millennials will be at the forefront of this growth, though baby boomers and others will have no shortage of impact. There is a perfect storm of legislative, economic and demographic forces brewing to fuel unprecedented growth in HSAs.
Legislative Factors
The ACA requires not only all individual citizens to carry health insurance, but also mandates all employers with 50 or more employees to offer health insurance. High-deductible health plans are less expensive for small employers to offer, so it’s reasonable to conclude that most businesses would choose them. Since premiums for HDHPs are also considerably lower than most others, individuals buying insurance on their own (either through healthcare exchanges like healthcare.gov or from other sellers of health plans) are also likely to select the less-expensive HDHPs. Since being covered by an HDHP is a requirement for having a health savings account, the potential is high for growth of HSAs among all consumers.
Economic Factors
Larger employers (200+ employees) have been steadily migrating to HDHPs as their sole offering for years. This picked up considerable steam during the Great Recession as a way to save costs, but also to allow employers to preserve other benefits, such as 401(k) matching. This trend was not replicated in the smaller employer space, though, as many of those employers simply stopped offering healthcare in the pre-ACA mandate environment.
Another new tactic being used by employers is defined-contribution healthcare. In this situation, the employer does not offer a health plan to employees, but rather makes a “defined contribution” to each employee that is earmarked for employees to purchase their own health insurance. As long as the contributions are properly designated and reported on the W-2 as contributions to the employee’s healthcare, this approach meets regulatory guidelines and is gaining steam with employers of all sizes. This will almost certainly drive more people to the open market for health insurance plans, which will also lead to a near-certain increase in the individual adoption of HDHPs, and HSAs by extension, in the years ahead.
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Demographic Factors
An estimated 2.3 million millennials ages 19-25 are covered by their parents’ health insurance but, under the ACA, will no longer be eligible for this coverage once they turn 26.
Paired with younger generations entering the workforce, it’s not hard to imagine HDHPs/HSAs expanding for as long as we can see. Also, consider millennials’ more transient approach to employment as compared to prior generations. Ninety one percent of surveyed millennials plan to stay with their current employer for less than three years, according to the Future Workplace “Multiple Generations @ Work” survey.
While these statistics may not seem intertwined, when you draw the lines and connect the dots—especially the economic and demographic ones—compelling evidence supports massive ongoing changes to the healthcare and health savings systems the U.S. has known for decades. Health savings accounts are already playing a pivotal role in this shift, and are poised to figure even more prominently in the years ahead.
How Does a CU Play its Part?
As you can imagine, the level of education around HSAs in the consumer space is dismal. Employers, the Internet, insurers, and even the healthcare exchanges provide sparse information or education about HSAs and how to use them. Rather, there’s a great deal of misinformation out there, further confusing the marketplace.
A credit union can provide incredible member service by offering more information on HSAs, the triple tax benefits of using them, and how everyone who has an HDHP can benefit from having an HSA.
Credit unions with small business relationships and/or select employer groups can also provide additional value by working directly with employers or the people selling their health insurance plans to be the HSA provider of choice. Keep in mind that public healthcare exchanges do no marketing of HSAs, nor do they offer them, so there is room for credit unions to make a difference in the market.
HSAs continue to expand rapidly each year. Eventually they will become as commonplace as IRAs, if not more so. Credit unions looking to attract and retain members, both within the millennial cohort and from outside, should give some serious consideration to how they can help consumers understand how HSAs can help with their healthcare saving and expense management needs. It is an underserved marketplace if ever there was one and a great spot for credit unions to provide value.
What About CU Employees?
Banks and credit unions that were early adopters of HDHP/HSAs for consumers were also early adopters of them for their own staff. It’s a great way to get your front-line staff more comfortable before you make HSAs available for your members.
According to the Kaiser Family Foundation, 26 percent of all employers already offer a high deductible plan. The larger the employer, the more likely they are to offer an HDHP/HSA option. Where those options are offered, over half of employees are covered under those plans. These two numbers are different because about 17 percent of all employers make more than one health insurance plan available to their employees.
When multiple options are made available, HDHP/HSAs are becoming an increasingly attractive and popular choice for employees.
This is especially true with younger workers, because the premiums are lower and the HSA allows employees to redirect money that would normally be lost to premiums into their HSAs.
As to whether this is a sound choice for your credit union depends on many factors, something best discussed with a benefits consultant or insurance provider. What we can say is that HDHP/HSA is becoming more and more popular with both employees and employers.
Kevin Boyles is VP/business development for the retirement products and services division of Ascensus.
