How voluntary products can be an ally in building HSA balances

An emerging trend that post-pandemic surveys are uncovering is employees’ increasing interest in using employee benefits to manage personal financial risk.

A growing number of employers are responding by sponsoring more benefits (like voluntary coverage, student-loan repayment, lifestyle accounts, and emergency-savings programs). In addition, companies are giving employees access to better decision-support tools like Voya’s MyHealth&Wealth™ and delivering financial education programs.

As more companies offer voluntary products, employees are analyzing this coverage to see how it fits into their strategy to mitigate or transfer risk. These plans can deliver some important financial benefits to workers who enroll and incur a covered claim.

For an employee who owns and funds a Health Savings Account (HSA) and incurs a covered claim, a payment from a voluntary plan may allow the account owner to retain a balance that continues to grow and can later be used to reimburse tax-free qualified expenses up and into retirement.

What are voluntary products?

The term voluntary products refers to particular coverage that many companies offer to employees during the annual open-enrollment period. Employees eligible for benefits can choose to enroll in these plans and pay the full premium. Employers can also choose to pay for part or all of this coverage for their employees. 

These voluntary plans aren’t medical coverage or coordinated with other coverage or products. They are limited benefit policies which are not health insurance and does not satisfy the requirement of minimum essential coverage under the Affordable Care Act. They pay a fixed amount benefit when an enrolled employee or family member experiences a covered event such as a hospitalization, critical illness, or accident. Benefits are paid directly to the insured and can be used as they determine. Thus, they can use the money to pay out-of-pocket medical costs or to even pay other daily living costs.

Traditional voluntary products

Companies that offer voluntary coverage typically give workers a choice of one or more of the following three types of coverages:

Hospital coverage. These policies pay a fixed daily benefit for a covered hospitalization, usually up to an annual day or admission limit. One hospitalization, even of short duration, can have financial implications and Hospital Indemnity Insurance provides a benefit that can be used for out-of-pocket medical costs and other expenses as the insured determines.

Critical illness coverage. These plans pay a specified dollar amount upon diagnosis of a covered condition, such as cancer, a heart attack, or a stroke. A critical illness policy can help ease the financial impact of out-of-pocket expenses related to treatment or even family and living expenses. Critical Illness may be referred to as Specified Disease in some states. 

Accident coverage. This coverage pays benefits for specific treatment or events when you have a covered accident — a range of benefits that may include loss of a limb or eye, an ambulance ride or emergency room treatment.

It’s important to understand what the policy covers and the benefit amounts. For a complete description of benefits, along with applicable provisions, conditions on benefit determination, exclusions and limitations, insureds should review their certificate of insurance and any applicable riders.

How voluntary products can complement HSAs

Individuals can’t open or fund their HSAs unless they’re enrolled in an HSA-qualified plan and don’t have disqualifying coverage. While this is ultimately a tax-consideration, these voluntary products are not typically disqualifying.

Voluntary products can be an ally and complement an HSA by providing benefits that are paid directly to the insured and can be used as they determine. Those benefits can be used towards any out-of-pocket medical expenses, helping an HSA owner to keep from potentially needing to dip into their HSA funds to do so.

For example, imagine an employee has a bicycling accident and is transported by ambulance to the local hospital emergency department. They incur expenses that are applied to their deductible, leaving them with out-of-pocket expenses they need to cover.

If they have accident insurance that pays benefits for covered events such as $400 for an ambulance ride, $250 for an MRI, and $100 for stitches, the employee can apply the $750 accident insurance benefit to their out-of-pocket medical costs rather than withdraw that $750 amount from their HSA.

If that $750 is kept in the HSA and invested at an average annual return of 6%, it will grow to nearly $1,350 after 10 years — and to more than $2,400 after 20 years. To put this savings in perspective, a typical retiree in 2022 will pay about $2,500 in premiums for Medicare Part B (outpatient coverage at a premium of $170.10 per month) and Part D (prescription-drug coverage at an average premium of about $35 monthly.) This example is for illustrative purposes only and doesn’t reflect payments for a particular patient or condition. Actual results may vary and this isn’t a promise of future balance growth.

Of course, it’s important to subtract the premium for accident coverage — which will vary from insurer to insurer — from these savings. But this simple scenario illustrates the financial benefit that’s possible when employees have both an HSA and voluntary coverage and experience covered events that are eligible for paid benefits.

The bottom line

A new generation of open-enrollment decision-support tools is helping employees evaluate how to optimally spend their benefits dollars to transfer, mitigate or manage risk rather than focus almost exclusively on their group health plan options alone.

For a growing number of employees, voluntary plans may play a role in optimizing the distribution of benefits dollars. And this coverage has the added benefit of reducing the strain on HSA balances when a covered employee or family member incurs a claim that triggers a payment from a voluntary plan.

To learn more about Voya’s voluntary product offerings and HSA features, contact your Voya representative today.