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Put Money into an HSA instead of a 401(k) After Employer Matching: Report

One of the main recommendations for employees with 401(k) plans is that they should contribute at least enough to their plan every paycheck to ensure they receive the maximum they can in their employer’s matching contributions.

But a new study by Willis Towers Watson recommends that younger, healthier workers should divert savings to their health savings account from their 401(k) after capping out employer matching instead of continuing to put money into their retirement plan.

The report reasons that if they do this, they can get more bang for their buck when they use their HSAs to pay for future medical expenses.

That’s because HSAs can be kept for life and the money they’ve accumulated in them can be used to pay for medical expenses whenever they need them, including in retirement. And the moneys used in HSAs to pay for those expenses are not taxed when they are withdrawn, unlike 401(k)s, the funds of which are subject to federal income tax when withdrawn

The benefits of HSAs

With HSAs:

  • Pretax contributions, gains from investment, and withdrawals used for qualified medical expenses are exempt from federal and most state taxes.
  • Any unused balance is carried over to the next year.
  • Funds never expire.
  • Unused funds can be passed on to a beneficiary after death.
  • After turning 65, account holders can withdraw money for any purpose. However, if those funds are not use for a bona fide medical expense, they are taxed as income.

No other retirement savings vehicle has the same tax advantages as an HSA, so a dollar saved in an HSA can be worth significantly more than an unmatched dollar saved in a 401(k), according to Willis Towers Watson. Some employers will match a portion of workers’ HSA contributions or seed their accounts with money to encourage participation. 

That said, HSAs won’t outperform funds that are matched partly or fully by an employer, according to the report.

Willis Towers Watson said that those tax-free dollars and withdrawals can help pay for health care when we are likely to use it most: in retirement.

Men who retire at 65 with an average life expectancy of 85 would spend about $140,000 out of pocket for medical costs, and woman who retires at the same age and lives to 87 would spend an average of $159,000, according to the research.

The HSA pitch

HSAs can only be used in conjunction with a high-deductible health plan. When HSAs were first introduced, they did not have investment options for the money in the accounts, but as they have grown in popularity over the years, many HSAs now have evolved to essentially have the same investment choices as a 401(k).

HSAs have rules about how much of the balance can be invested. They will typically require that the first $1,000 in the account to be held in cash, and anything above that can be invested to help the funds grow over time.

In 2021, workers can contribute a maximum of $3,600 to their individual HSA account and $7,200 to a family coverage account.

If you are offering your workers high-deductible health plans with matching HSAs, and if you also provide a 401(k) and match part of the contributions, you may want to consider sharing this information with them to help them make informed choices on where to park their money for future use.

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Addressing Pandemic Fatigue Among Your Staff

As the country and our businesses continue trudging along and hope that vaccines will pave the way out of the COVID-19 crisis, employers are increasingly seeing the effects of pandemic fatigue among their workers.

The same issues people are grappling with in their personal lives — exhaustion with social distancing and masking, a sense of loss of community and camaraderie, sadness over lost loved ones — are also spilling over into workplaces and affecting job performance. 

Pandemic fatigue can manifest itself in noticeable changes in employees’ mood or demeanor and result in an inability to concentrate due to anxiety and sleeplessness.

And now that vaccines are being administered at a quickening pace and word is that we may be able to soon resume normal activities, people have a sense of unbridled excitement. It’s like how kids feel when they’ve had a year of school and summer vacation is right around the corner.

It’s important for all employers to stay the course on their safety protocols, while at the same time acknowledging what their employees are going through. Keep requiring mask-wearing and social distancing.

The effects

Pandemic fatigue is real and can result in:

Employee disengagement — This can lead to poor productivity and mistakes in their work.  

Employee conflicts — Many people are stressed and exhausted, which can lead to arguments and irritation with co-workers. It can also happen if one employee doesn’t take COVID-19 precautions seriously, wearing a mask below their nose or chin (or not at all) and angering a co-worker who is serious about safety.

Failing to observe social distancing rules of being 6 feet apart can also result in arguments between co-workers.

Lost concentration — Pandemic fatigue can also lead to employees not focusing well on their jobs and safety regimens. This can result in workplace accidents.

What you can do

There are steps you can take to combat pandemic fatigue in the workplace, but the first and foremost thing you should do is consistently enforce safety rules and make sure that COVID-19 protocols should be part and parcel of the rest of your safety procedures.

You should do this by incentivizing good safety behavior, and rewarding that good behavior.

But you must also be cognizant of the emotional toll the pandemic has had on your workers. You can do this by boosting morale through:

Giving compliments — Provide positive feedback when merited, even for smaller achievements. Compliments go a long way these days due to the stress people have been through.

Showing compassion — Be consistent in your treatment of staff and consider checking in with employees to ensure that they are doing well. Ask how they’ve been faring and show empathy and sympathy for the issues they may be wrestling with.

Remember, some of your employees may have family that has succumbed to the virus or may be currently battling it.

Being calm and patient — It’s important that management shows calm and measured leadership, which can reassure the ranks that things aren’t so bad. Also, if management and supervisors can be patient when workers are dealing with stress, it can in turn tamp down any stress building among staff.

Exuding confidence — Part of being a steady and calming force includes expressing confidence that better times are ahead. This too can help your employees feel more relaxed about the future. Supervisors and managers should also express confidence in and appreciation for the employee’s individual commitment to stay the course.

The final word

These are tough times for most everyone, and for many people their work and personal lives have been upended and replaced with little to no social activity and feelings of isolation and frustration.

By providing steady leadership, continuing to enforce safety protocols and paying attention to the struggles your staff are facing, you can help any workers dealing with pandemic fatigue to better weather the storm that we may soon be exiting.

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HDHPs Do Not Slow Down Health Care Spending: Study

A new study has found that high-deductible health plans have only a limited effect on the growth of health care spending for people who sign on for these plans.

The National Bureau of Economic Research researched HDHPs over a period of four years and found they failed to control health spending any more than traditional preferred provider organization plans (PPOs) and health maintenance organizations (HMOs). The only statistically significant impact on lower growth by HDHPs was on more expensive pharmaceuticals.

The news comes as HDHPs continue growing in use and popularity among employers and some of their workers. They are often paired with a health savings account that allows participants to set aside a portion of their wages before taxes in special accounts used to pay for health-related expenses, including deductibles.

When HDHPs first came on the scene they were touted as a potential cost-saver. The logic went that when the worker has more skin in the game and has to pay more for their medical care and medications, they will shop around for the lowest-cost service or drug.

Here are the main findings of the report:

  • Covered workers who switched from low-deductible plans to high-deductible plans saw lower growth rates of spending, but for no more than a year.
  • HDHPs seem to discourage the use of less cost-effective drugs. The report surmised that’s because people with these plans will be more motivated to shop around for better prices, like from an online pharmacy.

Considerations

PPOs continue to be the most popular choice among employees and HDHPs continue growing as employers look to cut their and their employees’ premium expenditures, according to a recent report by Benefitfocus, a benefits technology company. HDHPs currently account for about 30% of group health plans in play.

Also, some employees prefer having an HDHP as they can save money up front on the premium.

Over the past few years, employers have noticed that younger and healthier workers will gravitate towards HDHPs when offered them, as they will usually not need much health care and they are willing to trade a lower up-front premium for the small likelihood that they will need a significant amount of medical care, which they would have to pay for out of pocket.

However, workers in their 40s and older are more apt to stick to their PPO or HMO plans, which have higher premiums but lower out-of-pocket maximums.

But the authors of the National Bureau of Economic Research report said that for some people with health problems, HDHPs “may have high adverse health consequences when patients delay, reduce, or forgo care to curb costs, even when costs are moderate compared to health benefits.”

The takeaway

There is no doubt that HDHPs will continue growing in use, but they are not for everyone. Employers that give their workers an option of choosing an HDHP or a traditional PPO plan will be able to better cater to the different needs of their workers.

This is important as the U.S. workforce becomes more diversified, and for employers with multi-generational employee pools.

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100% COBRA Subsidy in Effect Through Sept. 30

The recently enacted American Rescue Plan Act of 2021 includes a 100% COBRA subsidy for up to six months for employees laid off during the COVID-19 pandemic. The subsidy is in effect through September 30.

Due to the short ramping up period, it’s imperative that employers who have laid off workers, or who plan to do so, start preparing to notify them.

The Consolidated Omnibus Budget Reconciliation Act requires group health plans sponsored by employers with 20 or more employees to offer staff and their families the opportunity for a temporary extension of health coverage (called continuation coverage) after they have quit or been laid off for 18 months. The employees will usually be responsible for the entire premium.

Who is eligible?

Eligible individuals include:

  • Workers who were previously laid off or lost their benefits and became eligible for COBRA continuation coverage but chose not to purchase it, as long as they would still be eligible now. Example: A worker who was laid off in November 2020 but rejected the offer of COBRA coverage then.
  • Individuals who previously elected COBRA continuation coverage, but later dropped it, as long as they would still be eligible now. Example: A worker was laid off in August 2020, elected and purchased COBRA coverage, but dropped the coverage in January.
  • Individuals who were involuntarily terminated or experienced a reduction in hours, and who timely elect COBRA continuation coverage after April 1.

Individuals are not eligible for a subsidy:

  • If they voluntarily resigned from their job.
  • They become eligible for other employer coverage or Medicare.
  • They are beyond their maximum COBRA coverage period (which under federal law is 18 months, and under California law may be up to 36 months).

What’s covered

The subsidy applies to all health coverage that COBRA usually covers: health insurance, and dental and vision coverage too. Generally, the coverage that employers offer Assistance Eligible Individuals (AEIs) should be the same coverage in effect prior to their COBRA-qualifying events. 

Individuals who qualify for the COBRA subsidy are not required to pay a premium.

The group health plan will cover the cost of the coverage, which will be reimbursed (including any administrative fee) by the U.S. government via a payroll tax credit.

Notice requirements

When notifying newly eligible individuals, the information can be included with the COBRA election notice or a separate notice that would come along with the election packet.

The notices must include:

  • Notification of the availability of subsidies.
  • A prominently displayed description of the AEI’s right to the subsidy and conditions.
  • The forms necessary to establish eligibility.
  • A description of the special election period.
  • A description of the qualified beneficiary’s obligation to notify the plan when they are no longer eligible for coverage.
  • Contact information of the plan administrator and any other person maintaining relevant information in connection with the subsidy.

Important: The Department of Labor is expected to provide model language for these notices by April 10.

What you should do

There are a number of steps employers need to take as the ramping up period is quite short:

The recently enacted American Rescue Plan Act of 2021 includes a 100% COBRA subsidy for up to six months for employees laid off during the COVID-19 pandemic. The subsidy is in effect through September 30.

Due to the short ramping up period, it’s imperative that employers who have laid off workers, or who plan to do so, start preparing to notify them.

The Consolidated Omnibus Budget Reconciliation Act requires group health plans sponsored by employers with 20 or more employees to offer staff and their families the opportunity for a temporary extension of health coverage (called continuation coverage) after they have quit or been laid off for 18 months. The employees will usually be responsible for the entire premium.

Who is eligible?

Eligible individuals include:

  • Workers who were previously laid off or lost their benefits and became eligible for COBRA continuation coverage but chose not to purchase it, as long as they would still be eligible now. Example: A worker who was laid off in November 2020 but rejected the offer of COBRA coverage then.
  • Individuals who previously elected COBRA continuation coverage, but later dropped it, as long as they would still be eligible now. Example: A worker was laid off in August 2020, elected and purchased COBRA coverage, but dropped the coverage in January.
  • Individuals who were involuntarily terminated or experienced a reduction in hours, and who timely elect COBRA continuation coverage after April 1.

Individuals are not eligible for a subsidy:

  • If they voluntarily resigned from their job.
  • They become eligible for other employer coverage or Medicare.
  • They are beyond their maximum COBRA coverage period (which under federal law is 18 months, and under California law may be up to 36 months).

What’s covered

The subsidy applies to all health coverage that COBRA usually covers: health insurance, and dental and vision coverage too. Generally, the coverage that employers offer Assistance Eligible Individuals (AEIs) should be the same coverage in effect prior to their COBRA-qualifying events. 

Individuals who qualify for the COBRA subsidy are not required to pay a premium.

The group health plan will cover the cost of the coverage, which will be reimbursed (including any administrative fee) by the U.S. government via a payroll tax credit.

Notice requirements

When notifying newly eligible individuals, the information can be included with the COBRA election notice or a separate notice that would come along with the election packet.

The notices must include:

  • Notification of the availability of subsidies.
  • A prominently displayed description of the AEI’s right to the subsidy and conditions.
  • The forms necessary to establish eligibility.
  • A description of the special election period.
  • A description of the qualified beneficiary’s obligation to notify the plan when they are no longer eligible for coverage.
  • Contact information of the plan administrator and any other person maintaining relevant information in connection with the subsidy.

Important: The Department of Labor is expected to provide model language for these notices by April 10.

What you should do

There are a number of steps employers need to take as the ramping up period is quite short:

  • Coordinate with your COBRA administrator to ensure that you agree about who should identify eligible individuals and who will be sending out notifications.
  • If that is you, identify those individuals who may be eligible for the COBRA subsidy and who may be eligible to make a new election.
  • Prepare notification documents.
  • Notify all eligible individuals.
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