The Right Way to HSA

Employer healthcare costs are on the rise, with KFF and the Society for Human Resources Management respectively estimating increases of more than 6% in premiums and benefits cost per employee in 2026—the largest increases in 15 years.

Health savings accounts (HSAs), through which money can be set aside on a pretax basis to pay for health expenses, represent one solution that has risen above the churn in recent years as employers have sought to bring down total benefits spend. But employers must be cognizant of best practices when implementing an HSA if they want best results, cautions Mark Siebold, senior vice president and head of workplace solutions at Wintrust Workplace Solutions.

First and foremost: knowing when an employer should even offer an HSA. An employer should consider an HSA program in two primary cases, Siebold explains. “The first is when the employer is already offering an HSA-eligible health plan to their employees. If this is the case, there’s no reason to not offer an HSA.”

The other is when the employer is considering an additional plan option to complement the traditional plan. These HSA-eligible plans—high-deductible health plans (HDHPs)—enable employees to pay lower premiums for insurance and leverage the tax-free funds in an account for healthcare expenses today and in retirement, according to Siebold. These plans also might lower organizations’ health plan premium expenses, and HSA contributions lower FICA and payroll taxes for both the employer and employee.

Best Practices for Encouraging Participation

Of course, employers must make the case for employee use of the solution. First, Siebold recommends integrating the HSA offering into the open enrollment process, framing it as another benefit for employees.

On top of that, Siebold suggests that employers implement auto enrollment—immediately upon selecting the HDHP option, the employee is also automatically enrolled in the HSA offering. “By auto-enrolling in the HSA, you’re asking the employee to opt out if they don’t want to participate, versus asking them to take an action to select and open the HSA,” he says. That increases the likelihood employees will realize the HSA’s tax and benefit savings, according to Siebold.

Another avenue to increase usage is through employer contributions. “When the employee sees ‘free money’ coming into their account, it increases the likelihood they’ll take action to understand how the account works and ultimately start or increase their own pretax contributions,” Siebold says.

In the first year of the HSA, Siebold recommends employers make one-time contributions either at the beginning of the plan year to kick-start employee accounts or once a quarter during the plan year. Afterward, he recommends transitioning to a “per payroll” contribution structure—spreading out contributions through the year in equal amounts per pay period, with larger contributions for employees with a family plan versus single plan.

Best Practices for Employee Education

The other main way to boost HSA use is through education. Employees are often deluged with information during open enrollment because of regulatory requirements. That is why employers should consider sending educational communications throughout the year, so employees don’t let the HSA fall by the wayside while they focus on their health plan and 401(k).

Multimedia educational tools—videos, emails, webinars, and so on—are a great way to ensure employees have access to information in the form they prefer, resulting in higher engagement, more saving, and less spending, Siebold believes. This education should emphasize that HSA dollars can accrue interest and be used for investment without being taxed, he says. With smart use of HSA funds, employees can grow those funds for future use, including during retirement, since the account belongs to the employee.

Siebold highlights a Wintrust customer, a law firm with about 50 employees, as an example of what employers get out of all this. By following these best practices, that customer’s employee participation rate in the HSA program increased by over 60%, and the customer saw thousands of dollars in FICA tax savings.

Implementing and maintaining these best practices will maximize the benefits of HSAs for the company and its employees.