How will I know if I am funding the health savings accounts properly?

At renewal, you can decide whether you want to fund more, less, or the same amount toward health insurance premiums or the healthcare accounts to pay for expenses subject to the deductible.  In the case of HRAs, you can also decide whether you want to enhance your plan by offering additional coverage for eligible services, such as dental or eye care. Although you made similar decisions when you first designed and enrolled your employees in a CDHP, your decisions will now be based on actual utilization.

The old adage “healthcare is local” applies. Depending on your region of the country and the health insurance carriers you work with as well as the size of your group (usually over 100 eligible employees), most insurers can supply you with information that details how much your employees have spent on healthcare costs over the course of the year, and what kinds of health services they accessed.

At a minimum, you should review healthcare account utilization information to identify any patterns that need to be addressed through additional education or through a health and wellness program. This review will help you determine if the healthcare account funding allocation you offer employees is appropriate or needs to be adjusted. Based on this information, you can determine whether you’ve been contributing too much, too little, or just enough to the plan.

When you implement a qualified CDHP with an HRA that covers preventive care at 100%, and you fund 50-75% of the plan’s deductible through the HRA, you will see 60% (on average) of the total healthcare account funding allocation exhausted from year to year. On the other hand, if you use a HDHP that subjects only high-cost medical care and not the routine day-to-day medical care of doctors and prescription drugs to the deductible, that usage figure will decrease to about 40%, and you will limit the degree your employees’ behavior changes

When you implement a qualified CDHP with an HSA, most cover preventive care at 100%, and subject all other care to the annual deductible. Assuming you fund 25-50% of the deductible, on average, you will see utilization decrease even further to roughly 40%. In most cases, the drop in utilization with the CDHP paired with an HSA is substantially greater than the CDHP paired with an HRA and underscores the principle of “use it or keep it” and demonstrates significant behavior change

Too Much Funding

If most of your employees have a significant amount of healthcare account funding from the previous year roll over into the next, they may be receiving more funding than they need. In the first plan year, this isn’t necessarily a bad thing because there is more risk, and allocating more funds may actually help a majority of your employees feel the positive effects of the use it or keep it principle that is so integral to sustained behavior change. It’s important to examine spending patterns to determine the reason for the above-average rollover to ensure employees and their family members are not withholding care, which in most situations is not the case.

You may be contributing too much, but it’s also possible that members have had an unusually good health year and may experience more challenges in the coming plan year. Remember, you don’t want to penalize your employees for reducing their healthcare spending by reducing your healthcare account funding allocation from year to year. Your benefits advisor and your insurer can help you assess the relevant factors to determine whether the good results are an anomaly or if the improved utilization is a result of preventive care, less expensive treatment alternatives, or from over-funding your contribution levels. With this information, you can adjust your funding accordingly.

Too Little Funding

It’s also possible that your employees have had to spend a lot of money out-of-pocket because your contribution was not adequate, perhaps because you didn’t invest enough of the premium savings from the transition to a QHDHP. You may have overestimated the effects of a health and wellness program in the early stages and assumed that spending would go down more than it has, or perhaps you didn’t yet have a realistic handle on the cost of healthcare. Your benefits advisor and your insurer can help you identify the underlying trends and provide you with insight to help you make informed decisions as you move forward.

If your company experiences greater usage of the healthcare account than the averages listed above, you may need to invest additional dollars to ensure that you have not shifted too much financial responsibility to your employees. A second-year adjustment will encourage your employees to keep up the good work and also let them know that you are in this effort together, and that you will make corrections when necessary.

This information will also help you determine if there’s an educational or motivational problem. In these cases, money is not the issue and an increase in funding won’t solve the problem. Instead, determine whether your employees have received enough education about how to reduce spending and improve health, or if they’ve received this education but aren’t motivated enough to apply it.

If a lack of education is the problem, arrange education meetings with your benefits advisor and your insurer to focus on problem areas. If motivation is the issue, let this disappointment serve as an incentive to encourage workplace activities and increased employee health. Organize group activities so that the strongest, most motivated employees can lead by example.There is no greater teacher than a co-worker who can speak from experience. Don’t leave it entirely up to your staff to change their lifestyles—improve the health of the environment in which they work and show them by example the benefits of the CDHP philosophy.

An Appropriate Amount

You might find that the amount you’ve been contributing to the plan has been right on the mark and consistent with the statistics provided above. On average, roughly 65 percent of your employees will roll over funds from year to year, roughly 25 percent will exhaust their healthcare account funding but not satisfy their deductible, and approximately 10 percent will exhaust their account funding, satisfy the deductible, and hit their maximum out-of-pocket. Most of your employees will have some rollover (that’s a good thing) and some employees will have had to pay for some of their medical expenses out-of-pocket (that’s unavoidable). If these two extremes are reasonably balanced, you’ll know you’ve found an appropriate healthcare contribution strategy and should work to maintain it. Over the years, however, employee needs will change and you may have to contribute more or less to the healthcare account. The purpose of an annual review of your CDHP is to assess your plan’s performance and determine any necessary adjustments. Let your benefits advisor and insurer help you navigate these important decisions.

Coaches' Takeaway

You should always make sure you are adhering to IRS rules for HSA funding. It is also important to review healthcare account utilization information to identify any patterns that need to be addressed through additional education or through a health and wellness program. This review will help you determine if the healthcare account funding allocation you offer employees is appropriate or needs to be adjusted.

Tools & Resources

CDHPCoach’s Storage Facility, where the Coach has organized and compiled a vast amount of tools and resources for you to access.


Housed here are key components and information within the book, Bend the Healthcare Trend which was the impetus behind the CDHPCoach.