HSAs and Opt Out Payments

[Guest Eprail]

Health plan currently provides opt out payment (under cafeteria plan) to employees who do not choose coverage under employer's plan (a common provision).

For 2005 plan year, employer wishes to offer high-deductible health plan with health savings account and employer contribution thereto as but one option under its health plan. Employees who have previously opted out of employer coverage have now expressed an interest in opting back in, and the employer portion of the HDHP premium plus the employer contribution to the HSA is greater than the opt-out payment. In short, the new HDHP/HSA option could result in the employer spending more for health coverage than before!

Anyone else faced this design hurdle and developed a suitable solution? All I can see is that the employer must establish an appropriate breakpoint - that is, a point at which neither the opt out nor the HDHP/HSA option is more attractive than the other. For instance, if the opt out payment is $50 per pay period while the total cost of the employer contribution to the HDHP/HSA is $40, the opt out still remain attractive. Alternatively, I suppose employer could just make health care coverage prohibitively expensive (e.g., no employer contribution to the premium or the HSA) such that coverage was selected only by the truly needy!

Any thoughts?

[GBurns]

I find it difficult to offer a comment without knowing what the HDHP/HSA will cost, so as to understand why the employees would want to opt back in.

Why would the employer be offering this HDHP/HSA without having first quantified his cost? The cart seems to be before the horse. You do not make a committment before getting the details.

In any case the cost of regular coverage was always more than the opt-out, yet the employer offered it. The cost of the HDHP/HSA is also more than the opt-out. So what is the difference?

Is the employer cost of the HDHP/HSA greater or lesser than the regular plans? And yes the HDHP plan design needs a breakpoint to be calculated. Of course if the HDHP is restrictive, has very high deductibles etc, has limited providers and benefits caps etc etc byitself it could be unattractive to the employees, anyhow.

[QDROphile]

I assume that you are taking into account the employer's FICA tax savings when the employee chooses the health benefits rather than the cash.

[Guest Eprail]

Good points all, and GBurns, please don't shoot the messenger. I agree that this is all backwards - the breakpoint should be calculated before the new plan option is rolled out. And yes, the total cost of current coverage as well as the HDHP/HSA option exceeds the cost of the opt-out payment.

It all comes down to employee perceptions about employer contributions to the HSA. If the employer announces that it will place cash on the barrel head (e.g., up to a $40 match of employee contributions to an HSA that can be rolled over from year-to-year), and that cash is equal to or not much less than what is being paid to employees who opt out, more employees might be inclined to stay with/return to the employee plan.

In the end, I guess it just vindicates my original conclusion which is that this is about nothing more than making the HSA alternative attractive to those who would have no choice but to stay in the plan while continuing to incentivize others, who might be able to seek coverage under another plan, to do so. That, in turn, would seem to require an HSA contribution lower than the opt out payment.

Much appreciated.