Adjusting your health benefits strategy in the new year

Key takeaways

• In 2020, FSAs and HRAs experienced negative and stagnant growth, respectively, due to COVID-19
• COBRA growth remains a steady and ICHRA growth will soon increase, presenting opportunities for benefit administrators to pursue new revenue streams
• Reducing the scope of FSAs and HRAs, or tapping into unused sources of revenue, could breathe new life into these accounts

Although overall health benefits spending rebounded quickly after COVID-19 first hit, reaching 75% of pre-pandemic levels, the health benefits industry will undeniably face tempered growth and expectations going into 2021. A market forecast from Aite Group, based on interviews with executives, HR directors and brokers in the health benefits space, supports this. Here, we break down expectations for each benefit account type, as well as strategies benefit administrators can tap into to find success in this environment in the coming year.

Current state of FSAs and HRAs

• Flexible spending accounts (FSAs)
  Among benefit accounts, FSAs were dealt perhaps the biggest blow from COVID-19 due to stay-at-home orders and temporary bans on non-essential services. In addition, commuter FSAs and dependent care FSAs (DCAs) experienced a rocky year when offices and childcare facilities closed in the spring and early summer.
• Health reimbursement arrangements (HRAs)
  HRA growth remained stable despite the upheaval of 2020, with a CAGR from 2018 to 2022 of 3.2%. Aite Group predicts continued stable growth, resulting in 15.8 million accounts by 2022, after which HRA growth will divert to individual coverage HRAs (ICHRAs) and qualified small employer HRAs (QSEHRAs).

Alternative strategies that support business growth

As FSAs and HRAs experience minimal or stagnant growth, benefit administrators might consider other sources or fresh strategies for encouraging benefit account adoption and engagement.

Add an individual coverage health reimbursement arrangement (ICHRA) solution

ICHRAs allow employers of all sizes to fund an HRA for employees. Employees can then use those funds to buy individual insurance on the marketplace or to pay for out-of-pocket healthcare expenses. For consumers, ICHRAs eliminate the one-size-fits-all plan or set of plans employers traditionally provide, offering flexibility to choose the best plan for their unique circumstances. For example, younger, healthier employees can avoid over-spending on a comprehensive group plan that doesn’t necessarily apply to them in favor of using an ICHRA to find their own plan.

For employers, ICHRAs allow for more predictable spending, as the costs are up front and can be scaled for part-time employees. These plans work especially well for smaller employers who can’t afford to offer traditional group plans, as well as big employers with many part-time workers.

This coming year will see ICHRAs enter the benefits discussion in a big way, as employers consider cost-saving benefit options. The appetite is certainly there, with 86% of employer benefit decision-makers expressing some level of interest in this new plan type, according to Aite. An Alegeus survey shows that 65% of consumers would be interested in such a plan, too.

Although it’s more likely ICHRAs will take center stage in a year or two, a couple of scenarios could give them the boost they need this coming year: If a big-name company adopts the approach; or if benefit administrators, brokers and health plans proactively pursue the opportunity. This includes following the right ICHRA sales playbook and leveraging technology that ensures a seamless experience for employers and consumers alike. Alegeus integrates with HealthSherpa, a comprehensive ICHRA shopping platform that simplifies the ICHRA enrollment process for consumers and minimizes noise for employers.

Add a COBRA solution

The pandemic and subsequent shutdowns led to hundreds of thousands of layoffs, which in turn has resulted in the loss of health insurance for 15 million people for whom coverage was tied to employment. This reality has created an unprecedented volume of Qualified Beneficiaries (QBs) for COBRA, the Department of Labor regulations that allow individuals and families to continue their group health coverage for up to 18 months by paying the full premium amount plus 2% to their previous employer.

Despite other options for receiving coverage, such as the Affordable Care Act marketplace and Medicaid, COBRA enrollment has remained steady, with Aite Group estimating that 10% of those unemployed and in search of health insurance coverage will opt for COBRA plans. Further, there remains a chance that the Biden Administration and Congress will pass an additional coronavirus relief bill that extends the COBRA subsidy.

With this in mind, benefit administrators may consider adding a COBRA administration and direct-billing solution to their benefit offerings as another stream of revenue in the years to come.

Reconsider your FSA line of business

Because FSAs are one of the most established tax-advantaged accounts, they are also closer to reaching their ceiling. Even before COVID-19 hit, more employers had considered rolling back their FSA line of business than any of the other tax-advantaged accounts (about 8% of employers, according to Aite). Knowing this, some benefit administrators may look to scale back their FSA offering in favor of other accounts that have more growth potential, such as health savings accounts (HSAs) or ICHRAs.

On the flip side, benefit administrators could find success by diving deeper into FSA engagement and doubling down on important tools and educational strategies. For example, Aite found that a large gap between the funds consumers put into their FSA and the funds they use by the end of the year, proving that people remain challenged by estimating their out-of-pocket medical expenses. Benefit administrators can help employers better educate their employees on election strategies, eligible expenses, and when to use their account.

 An emphasis on the full consumer lifecycle can also revive your FSA strategy. This means moving past talking about and educating consumers about FSAs only once a year (usually during open enrollment season). Communication throughout the year in the form of helpful reminders can encourage greater consumer engagement with FSAs and better, more consistent use of FSA dollars.

Embrace a consumer funding strategy

With FSA and HRA growth slowing or stagnating, administrators could benefit from diving deeper into all of their tax-advantaged accounts and following the money. Data from a major Alegeus health plan client shows that more than 50% of member engagement activities are driven by spending accounts. People pay attention to their money, making those accounts the stickiest. Yet, only 30% of members have spending accounts. This means that a minority of members are contributing to a majority of account engagement. Therefore, by increasing penetration in spending accounts, benefit administrators could theoretically increase overall member engagement by 3-4 times. This increased penetration can come via existing accounts (FSAs, HSAs, HRAs and more) or through the offering of new accounts that involve funding, such as lifestyle accounts and 401(k)s.

Embracing a consumer funding strategy also involves acknowledgment of the full consumer journey. As healthcare costs continue to rise – Fidelity estimates that the average American couple will need to save $285,000 for healthcare in retirement – consumers must think about long-term spending, saving and investing strategies. Benefit administrators would do well to recognize this full journey and the many healthcare events that will occur along the way. Of these lifetime healthcare events, 40% are shoppable. If benefit administrators can influence consumers during these crucial moments, they can help members save anywhere from $500-$700 annually. In addition, this strategy increases engagement, boosting administrator revenue streams.