Health Accounts: Be Aware of the Shortcomings

Benefit Trends October 25, 2021

Health accounts have become a very popular way for companies to curb benefit costs. While this can be a good option, health accounts do have some shortcomings and it’s important to understand them.


With the battle for talent becoming more and more competitive, it is imperative for employers to leverage their benefits package to hook top talent and hold onto them. Benefits is the top consideration for a candidate accepting a position at or leaving a company, and, as you may know, health benefits is the #1 benefit as ranked by employees.

The question then becomes, how do you boost benefits while still prioritizing another objective: controlling benefits costs? This is the #1 HR objective, and yet controlling benefits costs and creating a stunning benefits package seem pretty contradicting. What now?

As mentioned above, the most common way to control costs is to offer employees health accounts. But health accounts have the propensity to fall in short in some areas.

Not Everyone Is Eligible

When considering a way to boost benefits to recruit and retain top talent, it’s important to recognize that health accounts aren’t actually eligible for everyone. Shareholders and partners aren’t eligible for FSAs and HRAs at all, and while they are eligible for HSAs, they don’t receive the same tax savings as other employees would.

Timing vs. Need

With health accounts, you run the risk that there won’t actually be enough money in the account at the time of the health need to pay for the expense. This can be an issue for HSAs and FSAs in particular because they are typically employee-contributed accounts through salary deduction.

For example, even if the FSA limit is $2,650, it’s possible that if an employee incurs an $1,000 out-of-pocket expense at the beginning of the year, there won’t be enough money in the account to pay for the expense because the funds have not had time to accrue from the salary deduction. Health accounts can still leave employees with a hefty out-of-pocket expense.

Not Insurance

As you know, health accounts are not insurance, but what does this mean for the employees using them?

First, any ‘coverage’ they provide is simply ‘dollars in, dollars out.’ HSAs and FSAs also have contribution limits and—because they aren’t insurance—that means those contribution limits are the caps for the funds the accounts can supply. While HRAs don’t have contribution limits, employers must offer the same amount to everyone in the company, which means they can’t offer a whole lot to anyone. It’s also important to not that employers who are making contributions to their employees’ health accounts aren’t providing any expanded value beyond the dollar amount they are contributing.

All-For One and One-For-All

As touched on in the previous section, employer contributions to health accounts must be the same for all employees. Not only does that make it difficult to offer a substantial amount to any employee, but it also makes it impossible to enhance the benefit for a particular group of employees, like top talent, that the company is actively trying to recruit or retain.

A Better Option

Supplemental expense reimbursed insurance can also be used to boost benefits and control benefits costs by layering coverage on top of the primary plan for just those hard-to-recruit-and-retain employee groups. It can be offered to anyone in the company, even partners and shareholders. Coverage is there when employees need it, no matter how early in the plan year. This type of plan is insurance, so it provides expanded value beyond a dollar-for-dollar limit. And, of course, carve-out coverage is possible.

To find out more about how supplemental expense reimbursed insurance stacks up against health accounts, access this recorded webinar. We cover real case studies and more about how expense reimbursed insurance can be utilized.

Fast Company.
SHRM. 2017 Employee Benefits Report.

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