On the heels of the early outbreak of the COVID-19 pandemic, the Internal Revenue Service announced that it was allowing employees to put away more money in health savings accounts (HSA).
HSAs, which work alongside high deductible health plans (HDHP), allow participants to save money on a pretax or tax-deductible basis with the ability to grow the account tax-free and then use the money to cover health-care costs free of tax.
In 2021, the HSA contribution limit will rise to $3,600, up from $3,550, for people with individual coverage. Those with family plans will be able to stash up to $7,200, which is up from the $7,100 limit in 2020. Additionally, accountholders who are over the age of 55 can save an extra $1,000 on each limit annually as a catch-up contribution.
Brian Colburn, senior vice president, corporate development and strategy at Alegeus, a health-care payments platform, explained that these changes are largely about keeping pace with inflation. Colburn noted that the increased limits still fall short of what most people need to save for health-care costs in retirement, but consumers should maximize those limits if they can afford it.
“Make sure you put in whatever you’re going to spend out of pocket. That’s table stakes no matter your income,” Colburn said. “If you’re going to have to spend $3,000, it’s better to get the tax savings on it than to pay post tax. Number two is ‘what can I afford to save beyond that?’ For some people that could be an extra $50 or $100 a year and for some people it could mean just maxing out their HSA for example.”
From an employer standpoint, it’s important that HR offers personalized guidance on health-care plans for their employees. Colburn said Alegeus research indicated roughly 90% of employees are novices when it comes to their own health benefits. Therefore, it’s incumbent upon HR to fill in the knowledge gaps with a proactive approach.
“The way people are consuming health care this year and likely next year is going to be different. The plans that they had, this is a really good time to think about whether you’ve got the right mix,” Colburn said. “With so many people working remotely, the way people get their information is changing. All of that stuff has had to change and what we see really innovative companies doing is they’re giving their employees better digital tools to help them with this. There’s a lot of good tech out there to help you pick the right plan based on your answers to five or six questions.”
Colburn added that an ineffective employer approach to communicating health benefits is compiling the data in a PDF and simply emailing it out to the staff.
“We think that’s a lot less effective, because consumers are reluctant to ask for health,” he said. “So if they’re confused, they’ll often just opt into what they had before.”
While employers bear a portion of the responsibility, the onus is on employees to do their homework, ask questions and ultimately strike the right balance with their health plan. In the midst of a pandemic, there’s no better time to make it a priority, Colburn said.
“This is a good year because of all the changes in how people are going to consume health care and the changes around how they’re learning in these remote settings,” he said. “It’s a good year to sit back and invest an hour or half an hour and dig in to think through holistically whether you’ve got the right set of benefits for yourself and your family.”
About the Author
Brett Christie is the managing editor of Workspan Daily.