Number of Employers Offering Health Savings Accounts Will More Than Quadruple in 2006, According to Mellon Survey Thursday May 19, 8:30 am ET
RIDGEFIELD PARK, N.J., May 19 /PRNewswire-FirstCall/ -- With health care coverage increasingly a top concern of American workers, and escalating health care costs challenging America's companies, a new survey released today by Mellon's Human Resources & Investor Solutions (HR&IS) business reveals that many more employers are planning to offer Health Savings Accounts (HSAs) in 2006. While only seven percent of survey respondents currently offer HSAs, 32% plan to add them next year. Mellon's survey, "Health Reimbursement Arrangements/Health Savings Accounts: National Trends" was completed in the second quarter of 2005.Thursday, November 04, 2004 9:38:15 PM
The vast majority of employers planning to first offer HSAs in 2006 are adding the accounts as an option for employees, with only two percent planning a 2006 implementation as a total replacement. Mellon's survey revealed that 66% of employers expect to contribute to the accounts.
On average, 16% of eligible employees are currently enrolled in an HSA. Survey respondents are targeting 24% as their enrollment goal.
"Small employers and individual consumers are leading the HSA charge this year," said Brad Engel, national health and welfare product leader with HR&IS. "But 2006 will see an explosion of HSAs, with many more large employers adding them to their benefits package."
Administrators of HSAs have amassed $460 million in deposits, according to a recent estimate by "Inside Consumer-Directed Care."
HSAs, which were authorized by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, are portable health savings accounts consumers can use to pay for qualified medical expenses. The accounts are offered in conjunction with a high deductible health plan that provides security against catastrophic medical costs. Both employers and employees can contribute to HSAs - up to $5,250 for a family and $2,650 for individuals in 2005. For employees, the pre-tax contributions will reduce their income taxes while allowing them to set aside money for their health expenses. Employees accumulate tax-free interest on their HSA balances and do not pay any taxes when using the money to pay for qualified medical expenses. Unused HSA balances can be carried forward from year-to-year, rolled over if the individual changes jobs, or even used for post-retirement health expenses.
Health Reimbursement Arrangements
Health Reimbursement Arrangements (HRAs) are employer-sponsored plans that are similar to flexible spending accounts, except that employees may roll over unused balances at year's end. They are funded with employer dollars, not employee salary reductions. HRAs can be coupled with a high-deductible health plan, helping the employer control costs.
Sixteen percent of survey respondents currently offer HRAs, and 20% plan to add them in 2006.
Current average enrollment in HRAs stands at 28% of eligible employees. Respondents are targeting an average of 36%.
Of employers that have not yet implemented HRAs, 53% are likely to skip over HRA-style plans and instead adopt HSAs. "Plan sponsors are going directly to Health Savings Accounts because employees and other plan members view them positively, seeing them as their own money," Engel said. "It's hard for a book entry account to compete with real, movable cash."
Effectiveness and Communication
Will these consumer-directed programs be successful? A full 66% believe they can be designed and communicated to help promote informed consumerism and decision-making behavior.
Finally, about two-thirds of respondents believe that their HR staff understands HRAs and HSAs very well or relatively well.
Mellon's Human Resources & Investor Solutions is a global human resources outsourcing, consulting and shareholder services business that creates value for clients through a complete range of human capital management and shareholder solutions. On March 16, 2005, Mellon announced a definitive agreement to sell its Human Resources consulting and outsourcing business to Affiliated Computer Services, Inc. (ACS) in a transaction that is expected to close before the end of the second quarter of 2005. Mellon Financial Corporation (NYSE: MEL - News), a global financial services company, is headquartered in Pittsburgh and is one of the world's leading providers of financial services for institutions, corporations and high net worth individuals, providing institutional asset management, mutual funds, private wealth management, asset servicing, payment solutions and investor services, and treasury services. Mellon has more than $4.0 trillion in assets under management, administration or custody, including $729 billion under management. Its asset management companies include The Dreyfus Corporation and U.K.-based Newton Investment Management Limited. News and other information about Mellon is available at http://www.mellon.com .
Mellon's survey "Health Reimbursement Arrangements/Health Savings Accounts: National Trends" is available to the media by contacting Ed Gadowski at (201) 902-2825. It is available to other interested parties at no cost from Adabelle Cohen at (203) 352-1684.