A nice feature of a Health Savings Account (HSA) is benefit portability. An HSA account legally belongs to the employee and is not related to their employment status so when an employee leaves your company, their HSA account goes with them. This is a nice perk for employees considering an HSA account and is intended to encourage employees to maintain their long-term medical savings regardless of where they are currently employed.
While this is a nice feature for employees, employers who contribute to employee HSA accounts may not see this in the same light. This is because terminated employees take their employer contributions with them. Many employers’ benefit budgets are already stretched thin. They are not interested in funding terminated employee’s medical expenses.
One way to reduce this liability is to design your employer contributions as monthly pro-rated amounts. This option ensures you are not continuing to contribute to terminated employee’s HSA accounts. One potential issue to consider is that employees cannot spend their HSA money up-front. They may have to pay for a large expense out-of-pocket and reimburse themselves as your monthly employer contributions accumulate.
While portability is a nice feature, the concept is not exclusive to HSA accounts. Health Reimbursement Arrangements (HRAs) offer similar features should an employer choose to include this option in their benefit plan. Retired employees can remain active simply by including them in your eligibility requirements. Terminated employees can remain active by implementing an option commonly referred to as the “spend down” feature. While this option does not allow for additional employer contributions, it does allow the employee to incur services after they leave your company. If portability is a high priority for your next plan year, HRAs and HSAs are good options to consider for your company.
However, if portability is a concern for your company, consider an HRA account. Many employers choose HRAs because of this concern. Very similar to 401k vesting schedules, employers are looking for ways to increase retention. Providing a benefit that does not leave with the employee can help accomplish this goal.