Mark Siebold, SVP and head of workplace solutions at Wintrust Workplace Solutions, offers a comprehensive overview of health savings accounts (HSAs) and the benefits to both employers and employees.
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Siebold: I think about HSAs the same way. If I go into the doctor or into the pharmacy and I pay for a medical expense, a treatment or some service, if I don’t have my HSA, I’m going to pay rack price. I’m paying full price. If I have my HSA, I could be saving 30% with all those tax benefits.
Laycox: Welcome to the Leader’s Edge podcast. I’m Sandy Laycox, Editor in Chief of Leaders Edge. In this episode sponsored by Wintrust Workplace Solutions, I talk with Mark Siebold, Senior Vice President and Head of Workplace Solutions at Wintrust. Our benefits focused conversation begins with his take on open enrollment and how it could be more effective. He talks about opportunities to engage employees at different times and with different plan designs.
Siebold: I’ll start by saying that it’s a challenge. There is no silver bullet that I’m aware of. There’s a lot going on during open enrollment, a lot of different benefits that employers offer. So for every employer out there doing it, it’s a challenge. With that said, I have seen some businesses be more successful by using some best practices when it comes to how they engage, what they say, who they say it to, but also the timing of communications. We all know as you come into, you know, for my company at least, Wintrust, into late October, early November when we’re getting into enrollment, there’s so much information being pushed at people about all those different benefits that I referenced earlier.
So one of the things that I tell employers that we’re working with, especially around HSAs and FSAs, HRAs, LSAs, those account based benefits that we offer employers and work with the brokers who work with those employers to move those programs in, is don’t only focus on open enrollment when it comes to communications. Try to sprinkle in communications in multiple forms, could be webinars, could be email communications, could be online communications, in town halls, throughout the year. And Wintrust, again, my organization, does a really good job of engaging us about a month before we get to open enrollment. So we’ll start getting communications in Septemberish about what’s new for what’s coming for benefits, what’s changing, health plan changes, new benefits they’re offering just to start to sprinkle in some information so it’s not over inundating people come late October.
And then throughout the year, again, especially for HSAs, there’s some themes that employers can hit on that are important and relevant based on the time of year. So for us coming into February, for example, that’s tax time and there’s some things you need to do with your HSA account when it comes to reporting on your taxes. So it’s important for us to engage people then around those topics. But also, again with HSAs, you have up until your tax filing deadline to contribute for the prior year. So reminding people in that timeframe, February, Marchish, that you know, you can still put money in hypothetically if you haven’t maxed out for the last plan year. That’s a big part of it.
The other thing that’s really important is plan design. You know, having incentives for people to become engaged could be a financial incentive, for example.
So we really push employers to do a contribution into the HSA account, whether it’s a seed that they put money in, say in January into their employees’ HSA accounts, or do a match throughout the year so that people—you know, human nature, if I’m getting free money, somebody’s giving me something, I’m more apt to want to learn about it. Not only the fact that I have the money and what can I do with it, but HSAs have great tax benefits. So if I’m engaging my employees through that free contribution, which doesn’t have to be a lot of money, something as low as $25 or even $100 makes a big difference. And now I’m engaged, I’m learning about it and I find out that, oh, there’s all these great tax benefits for me. I’m not paying FICA tax on contributions.
I’m not paying state and federal tax in most of the states on the money that goes in. It’s the carrot idea to lure people in. And when you design the plan the right way, use auto enrollment—so if you know who’s in the high deductible plan or the HSA eligible plan, automatically open an HSA for them. That’s another great tool to get people engaged.
Laycox: We then dig deeper into health savings accounts, including the basics of what they are, how they can be used effectively, and the different benefits they provide for employees and employers.
Siebold: HSAs are a tax deferred account. They started in 2004, so they’ve been around now for about 20 years. And one of the key things with an HSA is you have to have a qualified high deductible plan or an HSA eligible health plan to open the HSA. So that’s the first thing that we talk to employers about so that they’re offering that health plan to their employees. But then talk to the employees as well about if you have multiple health plans and you want to use the HSA, make sure you’re using the HSA eligible plan. And a lot of plans are called that now, making it easy for folks to understand which plan they need. But the biggest benefit of a health savings account is the tax benefits.
So you’re not paying tax on, you’re not paying federal tax on contributions, you’re not paying state tax on contributions, with the exception of two states. And you also don’t pay FICA tax. And that’s a really big deal, not only for the employee (FICA is also called payroll tax), it’s a big deal for the employer because the employer pays 7.65% on income—that’s wages that are paid out to their employees. The employee pays 7.65% on their income. But if you put that in an HSA account, those two pieces go away. So the employer’s saving 7.65% on all those contributions, as is the employee, that’s really wrapped up in those tax benefits. But then you’re not paying on earnings. So any earnings in the account, if you invest, for example, there’s no taxes on that.
You’re also not paying taxes on money that comes out of the account as long as it’s used for qualified medical expenses. So there’s nothing else like it. And that’s the component, the tax benefits that we really try to get across to people to shine a light on the benefit to them. What’s in it for me, I’m going to save a lot of money. And the example I like to use for employees who may be new to HSA accounts is I think about things in terms of real life examples. So you’re, I’m sure you’re familiar with the department store Kohl’s—they’re headquartered here in Wisconsin. They are big on these coupons they send out—you get 30% off if you come into the store.
If you go into the store and you forget your coupon, at least it used to be this way, you were out of luck. They weren’t giving you that 30% off. You were paying full price. I think about HSAs the same way. If I go into the doctor, into the pharmacy and I pay for a medical expense, a treatment or some service. If I don’t have my HSA, I’m going to pay rack price. I’m paying full price. If I have my HSA, I could be saving 30% with all those tax benefits that I referenced earlier.
Laycox: Is there anyone who an HSA is not appropriate for or is this generally something that really all employees could look at.
Siebold: Yeah, a couple different ways to look at that. One, if your employer offers you a high deductible plan that’s HSA qualified, I can’t think of a reason why you would not open an HSA as long as you’re qualified and can open it. And there’s a couple of rules, you know, that would potentially keep someone from being able to open an HSA and contribute. But if you’re eligible for that HSA, open it. There’s no reason not to, right? The employer may put money into it, like we talked about, but if not, you’re able to make your own contributions. There is some talk, and has been for a long time in the industry about high deductible plans, who they’re right for, who they’re not right for.
But the reality is a lot of health plans that maybe weren’t a PPO, a traditional health plan, or a high deductible a few years ago have become HSA eligible because of what’s happened with deductibles and premiums. So if you’re eligible, open that HSA account, get money in there, get the tax benefit, and hopefully you’re saving it. If you can’t, if you need it, if you have to spend it—and I’ve been in that boat personally with two kids who broke four bones between them in six months. I’ve been in that boat. So I had to use my HSA account. But when times are good and you don’t have a lot of health expenses, try to save it, because there’s no use it or lose it. You can save it for retirement and hopefully invest it too, and build additional growth through investments.
Laycox: Increasing medical expenses and decreasing disposable income during retirement is a common problem for people. Mark explains how HSAs are helpful for employees nearing retirement who may soon be faced with this challenge.
Siebold: My parents both retired within the last about 10 years, and I can remember having this conversation with them related to, you know, what are your anticipated health expenses in retirement? How are you going to pay for them? And I will tell you, for them, and I think this applies to millions of people who are nearing retirement or in retirement. They think that Medicare is going to pay for most of their healthcare expenses in retirement. And the reality is that’s not true. There’s still going to be a lot of things you need to pay for that Medicare is not going to cover. There’s been estimates out there from a number of financial institutions that, say a married couple, for example, in retirement will need $300,000 or more just for medical expenses. And that’s a huge number.
That’s a huge number for anyone nearing retirement or in retirement. So that’s the reality, and most of us agree that it is. We start to think about then, how am I going to save for that? You know, I’m going to have Medicare, I’m going to, you know, to cover some of those expenses. But the expenses that aren’t covered, what’s the best way to save for that? Am I, my opportunities to save are a taxable account, right? I can put money into a taxable account, but if I do that, I’m paying 20, 30% or more in taxes on that amount, right? Because my employer is pulling that money out of my check and sending it to Uncle Sam. I can put it into a 401k, another great savings vehicle for retirement.
But if I take money out of my 401k at retirement and use it for medical expenses, I’m losing again, 20, 30%. Depends on your tax bracket, right? So it’s an individual thing based on your tax situation, but you’re losing a big chunk to taxes again. Or do I use an HSA account where the money goes in, grows tax deferred and comes out completely tax free for medical expenses? It’s pretty obvious that that’s your best option. So if you’re eligible for it, if you have that high deductible HSA eligible plan, you really should be using the HSA to save for those medical expenses because there’s not a better opportunity, a better way of doing that that’s going to get you the most bang for the buck when you need the money, and that’s especially in retirement.
Laycox: Do HSAs sort of move the needle at all in terms of employers and the tremendous healthcare costs that they are taking on?
Siebold: It does. Employer size matters in terms of how many employees they have, how many people they have contributing to HSAs and FSAs, for example. But that FICA tax example I gave, the payroll tax example earlier, can be a really big deal, especially for a mid and large sized employer. If you do the math on that, 7.65% times all those contributions, let’s say you have 100 people in your business that you employ and they’re all contributing $3,000, for example, multiply 7.65% times that and that’s a big saving for the employer and for the employee. But even bigger than that, as an employer, you’re doing a great thing for your employees, you’re helping them save not only for medical expenses, they need the money today, but you’re also helping them save for retirement. So it’s a two for one sort of benefit.
I’m helping you save for medical expenses. We know those keep going up and up and up. That’s a big deal for employees. But also, if you can, if you don’t need that money during your working years and you can save it, you have a great nest egg to pay for those medical expenses which are going to be inevitable in retirement. Like we talked about earlier.
Laycox: Finally we discussed the discrepancy between the real value of benefits that employers are offering and the perceived value by employees, and how employers could better communicate to employees what they are really getting.
Siebold: That’s an excellent question. One of the things that Wintrust does that I really like, and I know other employers do this as well, is on every pay stub, so every time I get paid, every two weeks, I look at my pay stub and it’s outlined very clearly what I paid in terms of what I paid for my benefits. So health insurance, for example, what my premiums were for that pay period. But they also show very clearly what they’re paying.
And that to me is really eye opening, not only throughout the year in my pay stub example, but also upfront during open enrollment is I encourage employers to be very transparent with their employees about what they’re doing for them and the high cost, because an employee will see the amount of money coming out of their paycheck for health insurance, for example, and be like, wow, that’s really expensive. And a lot of times it is. But a lot of times if the employer is covering part of those premiums, they’re paying even more into that insurance carrier to have insurance for their employees. So I tell employers to be very explicit about how they convey that to their employees to show them the value mathematically, you know, numbers mean something. So that’s really important. And again, talk about it throughout the year, back to our original question.
Siebold: Open enrollment is not the only time to be communicating about benefits. And the other example that I like to use, you know, there’s the carrot approach. So I’m going to give you something to encourage you, right, to participate, for example, in benefits. And there’s what I would call the stick approach, which is if you don’t do this, this is the downside. So I like to, in the middle of the year, so come June, July of next year, I will send out a communication to employees and say, hey, we’re offering you all these great benefits. Here’s an HSA, for example, if you would have started contributing in January, by now, by the middle of the year, here’s how much money you could hypothetically have based on the money you contributed. Here’s how much you would have saved in taxes.
Here’s how much you could have potentially earned in interest or in investment growth. So using those negative examples of, hey, here’s what you’re missing out on, I think, and here’s what your colleagues are doing. So testimonials are great. If you have employees who are willing to speak up about their benefits and how they’ve benefited from them, the value that they’ve seen, use those in written form, in video testimonial form, to really illustrate the benefit, the value, to use your term, that you’re bringing to your employees. They tend to see that more through what their colleagues, their family and friends are doing. So just a couple of examples of ways to illustrate that.
Laycox: Wow, I bet that is really painful to look at all of the money that you didn’t save.
Siebold: Sometimes we need a little bit of pain to push us to do the right thing, right?
Laycox :I agree. I bet that one is really effective. That was Mark Siebold, senior vice President and Head of Workplace Solutions at Wintrust Workplace Solutions. I hope you enjoyed our conversation. For more Leaders Edge podcasts, go to leadersedge.com.
