Guest Article

(From the September 11, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

BLS Data on Availability of HSAs, Wellness Programs, and Health FSAs

New data from the Bureau of Labor Statistics (BLS) indicate that 71 percent of private-sector workers have access to medical care benefits as of March 2006. Fortunately, the BLS data also report on the prevalence of certain features of those medical care benefits, including health savings accounts (HSAs).

Consumer-Directed Health Care

The BLS data do not measure the incidence of consumer-directed health care (CDHC) plans. However, the data do indicate that HSAs (as defined in IRC § 223) -- a key feature of a common CDHC plan design -- are available to six percent of all private-sector workers. (An alternative to HSAs in CDHC plan designs is the health reimbursement arrangement, or "HRA". Unfortunately, the BLS data do not include information about the availability of HRAs.) The breakdown of HSA availability by various private-sector worker characteristics is as follows:

Private-sector workers employed by large employers (those with at least 100 workers) are three times as likely to have access to HSAs than those who work for smaller companies. Specifically, nine percent of workers in the former category, and only three percent in the latter, have access to HSAs. The fact that HSAs are available to a greater percentage of employees of larger companies is not necessarily surprising because HSAs, which were created as part of the Medicare Modernization Act of 2003 (P.L. 108-173), are still relatively new and large employers are usually first to experiment with new benefit options. But the size of the difference is perhaps a bit surprising because CDHC plans incorporating HSAs are fairly easy to design and should be less expensive for employers than more traditional medical care plans.

One factor that may encourage more employers -- both large and small -- to offer HSAs in the future is the IRS's decision to relax its interpretation of the employer comparable contribution requirement. In general, employers do not have to contribute to employees' HSAs, but if they do they must make "comparable contributions" to the HSAs of all "comparable participating employees." Employer contributions are comparable if they are the same dollar amount or the same percentage of the annual deductible under the employees' high-deductible health plans (HDHPs). The term "comparable participating employees" refers to employees who are eligible to contribute to HSAs and who have the same category of coverage (i.e., self-only or family) under the employer's HDHP.

The comparable contribution requirements apply separately to part-time and full-time employees. A part-time employee is any employee who is customarily employed for less than 30 hours a week. The statute does not specify any other permitted distinctions among employees for comparable contribution testing purposes. As a result, the IRS initially refused to recognize any other distinctions, including those between collectively and noncollectively bargained employees. However, the IRS recently issued final regulations permitting employers to disregard collectively bargained employees for purposes of the comparable contribution requirements, and providing more flexibility for employers to distinguish among employees with different types of family coverage. These rules should help make HSAs more attractive to employers.

Wellness plans, which generally create incentives for employees to lead more healthy lifestyles and/or avoid certain unhealthy behaviors, are another common feature of CDHC plans. According to the BLS, 23 percent of all private-sector workers have access to wellness plans. These plans are more prevalent among white collar workers (31 percent) than blue collar workers (19 percent), and more prevalent among union workers (35 percent) than nonunion workers (22 percent). Also, 35 percent of higher wage workers (those with average hourly wages of at least $15) have access to wellness plans, but only 15 percent of lower wage workers do.

Health Flexible Spending Arrangements

The BLS data also report on the availability of health flexible spending arrangements (FSAs) offered through IRC § 125 cafeteria plans. Employees can defer money to health FSAs on a pretax basis and use those funds to pay out-of-pocket medical expenses incurred by themselves, their spouses, and dependents. This can be a very valuable benefit for employees that employers can provide at minimal cost. However, only 32 percent of all private-sector workers have access to health FSAs. White collar workers (43 percent), full time employees (37 percent), union workers (35 percent), and workers with average hourly wages of at least $15 per hour (45 percent) are most likely to have access to health FSAs.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2006, Deloitte.