HSA Update

2015 Brings New Contribution Limits for FSAs

The IRS announced that the annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA). Dollar limits rise to $2,550, up $50 dollars from the amount for 2014. Under the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014. Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2014-61, which will be published in Internal Revenue Bulletin 2014-47 on Nov. 17, 2013. The pension limitations for 2015 were announced on Oct. 23, 2014.

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HSAs Gain Ground With Rising Health Care Costs

In 2014, U.S. employers and their employees saw a slight uptick in the rate of U.S. health care cost increases, according to an analysis by Aon Hewitt. Aon Hewitt’s research shows that high deductible health plans (HDHPs) are the second most popular plan choice offered by employers, surpassing HMOs. Fifteen percent of employers offer a HDHP as the only health plan option, and another 42% are considering doing so in the next three-to-five years.

After plan design changes and vendor negotiations, the average health care premium rate increase for mid-size and large employers in 2014 was 4.4%, up from 3.3% in 2013. In 2015, Aon Hewitt projects average health care premium increases will be 5.5% after plan design changes and vendor negotiations.

The average health care cost per employee in 2014 was $10,717, up from $10,266 in 2013. The portion of the total health care premium that employees were asked to contribute toward this premium cost was $2,487 in 2014, compared to $2,355 in 2013. Meanwhile, average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, increased from $2,005 in 2013 to$2,295 in 2014.

For 2015, average health care costs are projected to increase to $11,304 per employee. Employees will be asked to contribute 23.6% of the total health care premium, which equates to $2,664 for 2015. Average employee out-of-pocket costs are expected to be $2,487. These projections mean that, over the past five years, employees’ share of health care costs, including employee contributions and out-of-pocket costs, will have increased more than 52%, from $3,389 in 2010 to $5,151 in 2015.

Tim Nimmer, chief health care actuary at Aon Hewitt said, “Over the past few years, the overall economic situation kept consumer spending on discretionary items down including health care. Now, with employment rates stabilizing, individuals are feeling more secure about their financial situation and have been willing to re-engage in using the health care system. As these utilization rates increase, we expect to see health care cost increases follow.”

Costs by Plan Type
Year HMO POS PPO National
2015* $11,386 $12,344 $11,141 $11,304
2014 $10,762 $11,711 $10,570 $10,717
2013 $10,356 $11,101 $10,127 $10,266
2012 $9,876 $10,621 $9,862 $9,934
2011 $9,360 $10,232 $9,420 $9,473
2010 $8,665 $9,176 $8,708 $8,729

*Projections

†Costs are plan costs (premium or budget rate) on a per employee basis. They include employee contributions, but not their out-of-pocket costs (i.e., co-payments, coinsurance).

As the health care landscape continues to evolve, employers are reducing costs by implementing a mix of traditional and non-traditional approaches.  For example, employers may offer a basic high-deductible plan to their entire workforce, but make a richer PPO option available to employees who complete a health risk questionnaire or biometric screening.

Twenty-two percent of employers have reduced subsidies for covered dependents while 18% added a surcharge for adult dependents with access to other health coverage. An additional half of employers are exploring such approaches over the next few years.

Fifty-two percent 52% of employers are considering using unitized pricing in which employees pay per person and not individual versus family.  Fifty-eight percent of employers have completed a program audit of covered dependents to ensure only those who are eligible will remain on the plan.

An increasing number of employers have adopted or plan to adopt some of the following pay-for-performance strategies. Twenty-four percent steer participants (through plan design or lower cost) to high quality hospitals or physicians for specific procedures or conditions and another 56% are considering doing so in the next three-to-five years

Eighteen percent use integrated delivery models, such as patient-centered medical homes, to improve primary care effectiveness, and another 56% plan to do so in the next three-to-five years. Ten percent have adopted reference-based pricing—where employers set a pricing cap on benefits for certain medical services for which wide cost variation exists with no discernible differentiation in quality. Another 58% plan to do so in the next three-to-five years.

Private health exchanges are becoming increasingly attractive to employers that want to offer an expanded choice of plans and insurance employers while lowering future cost trends and lessening the administrative burden associated with sponsoring a health plan. In this model, employers continue to sponsor and subsidize health insurance, but allow employees to choose from multiple group plan options and insurance carriers via a competitive, health insurance marketplace.  “Forward-thinking employers are not only looking for near-term cost mitigation, they are using this period of somewhat dampened health care cost increases to accelerate the pace of change within the health system, As costs begin to rise, employers need to be ahead of the game with a health program that encourages consumer accountability while rewarding health care providers that deliver cost effective, high-quality health outcomes,” said Jim Winkler, chief innovation officer of Health & Benefits at Aon Hewitt. For more information, visitwww.aonhewitt.com.

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New HSA Fact Book for Advisors

HSA Authority published the “Health Savings Accounts Facts.”

The book is written in a simple question and answer format that allows professionals to quickly find and answer the actual questions they face. The answers provide examples that match real life experiences and include legal citations when appropriate. The book is indexed, contains a forms and worksheet appendix with useful HSA tools, and uses a variety of charts to simplify HSAs. The book is designed for benefit professionals, HSA custodians, insurance representatives, human resource employees, attorneys, accountants, financial planners and other professionals that advise on HSAs. The book is published by National Underwriter. For more information, visit www.hsaauthority.com.