Cutting Healthcare Costs: Essential Strategies for HSA Success

Organizations across the country are grappling with escalating healthcare expenses that show no signs of slowing down.

Recent analysis indicates that health benefit costs are projected to increase 5.8% in 2025, marking the third straight year of premium growth exceeding 5%. Over the past five years, organizations have experienced total annual premium costs for family coverage surge by an overwhelming 24%, creating unprecedented budget pressures.

What do these increases mean in practical terms? Industry research demonstrates that family coverage costs organizations the equivalent of purchasing an economy car for every worker, every year.

Rising healthcare costs represent a longstanding challenge. “I entered this industry 14 years ago, and we’ve been discussing double-digit increases ever since,” notes a senior benefits consulting professional. “The acceleration has been particularly pronounced recently.”

Contemporary factors like innovative weight-loss medications and advanced gene therapies are driving costs higher, as specialized treatments command premium pricing while general medical inflation continues its upward trajectory, according to industry experts familiar with market dynamics.

Healthcare costs and premiums undergo annual reassessment, creating ongoing pressure for organizations to adapt their strategies accordingly.

The imperative to control healthcare costs has intensified in recent years. For organizations, the challenge of rising healthcare costs extends beyond budgetary concerns. Leadership teams are evaluating whether to reduce their benefit packages or eliminate certain programs entirely.

While these decisions might help balance budgets, they carry significant consequences: reducing benefits can make it more challenging for organizations to attract and retain top talent.

This dilemma creates a pressing need for solutions that preserve benefit quality while maintaining fiscal responsibility. The health savings account (HSA) emerges as a promising approach. This guide examines the impact of rising healthcare costs and demonstrates how HSAs can deliver both cost savings and enhanced flexibility for organizations and employees alike.

Understanding the Business Impact of Rising Healthcare Costs

The escalation of healthcare costs creates obvious financial strain. What receives less attention is the comprehensive impact of these price increases on business performance. Beyond direct financial implications, organizations face challenges with employee wellbeing, performance, talent acquisition, and workforce retention.

Rising Costs Create Workforce Stress and Reduce Productivity

Organizations aren’t alone in dealing with rising healthcare costs; employees have also experienced increased contributions. Over the past five years, employee healthcare payments have risen approximately 5%, adding roughly $300 annually to their expenses, according to recent workforce studies.

In the past five years, employee healthcare payments have increased by approximately 5%, adding roughly $300 annually on average.

Healthcare costs create financial and emotional stress for employees. Approximately half of U.S. adults report difficulty affording healthcare costs, with a quarter struggling to pay for medical care. It’s unsurprising that one in four respondents has delayed care due to cost concerns. About 20% have opted for over-the-counter alternatives instead of prescribed medication, decisions that can result in negative health outcomes and lead to performance and attendance issues at work.

As employees face these challenges, their work performance suffers. Research shows that financially stressed employees miss more workdays and demonstrate reduced focus. These employees are also more likely to seek new job opportunities. In fact, employees experiencing financial stress are 2.3 times more likely to leave for another position.

The Financial Impact on Organizations

• 74% of adults report at least some concern about affording unexpected medical bills or healthcare services.
• 56% of financially stressed employees spend at least three working hours per week managing their personal finances.
• 47% of financially stressed employees experience mental health issues that impact their work performance.
• $250 billion: The annual cost companies incur from productivity losses due to financial stress.

The increased likelihood of turnover among financially frustrated employees raises an important question: why do financially stressed workers leave their positions?

Research suggests several explanations. Surveys indicate that employees attribute turnover primarily to seeking better benefits and compensation at other organizations.

Conversely, research from America’s Health Insurance Plans reveals that healthcare benefits serve as a retention factor: more than half of surveyed individuals indicated that healthcare coverage influences their decision to remain with their current employer.

These findings highlight the critical importance of benefits in talent acquisition and employee retention. Employees are willing to accept lower salaries for superior benefits, and they’re equally willing to stay in positions to maintain preferred coverage.

Talent: The Core Challenge of Rising Healthcare Costs

For organizations, the financial burden of rising healthcare costs is undeniable. Escalating premiums continue consuming larger portions of company budgets annually.

However, this budgetary challenge represents only one aspect of the issue organizations confront. Each year, organizations must determine how to fund benefits they have previously provided. For years, organizations shifted costs to employees, but expenses have become so significant that organizations had to explore alternative approaches.

To shield employees from rising expenses, organizations have begun reducing benefits, using analytics to identify the least utilized programs. Some organizations have eliminated wellness benefits due to limited employee adoption.

This approach illustrates the fundamental tension underlying rising healthcare costs. As costs increase, organizations face pressure to eliminate certain benefits or reduce plan quality. While this strategy helps control expenses, it threatens organizational appeal to current and prospective talent.

How HSAs Benefit Both Organizations and Employees

For many organizations, the solution to rising healthcare costs lies in HSA implementation. By introducing an HSA, organizations can continue providing exceptional benefits without placing excessive financial burden on employees.

HSAs enable employees to reserve funds for medical expenses in the near or distant future. The most significant advantage an HSA provides employees is its distinctive triple tax benefit:

1. All contributions to the account are tax-free
2. Account growth occurs tax-free
3. Medical expense withdrawals are tax-free

These advantages provide substantial benefits to both organizations and employees. “An HSA delivers cost-saving benefits to both the organization and the employee, while giving employees greater flexibility in their healthcare savings and spending decisions,” according to benefits experts.

HSAs Support Employee Financial Security—Today and Tomorrow

In an environment of rising inflation and healthcare costs, HSAs give employees decision-making power. They can utilize funds for immediate healthcare expenses or treat their HSA as a long-term financial planning instrument.

“HSAs can serve as superior retirement savings vehicles compared to 401(k)s due to the triple tax advantage,” notes a director of consumer engagement.

However, the financial benefits of HSAs extend beyond future planning. Typically, organizations offer HSAs alongside high-deductible health plans (HDHPs) or other HSA-compatible options. When average HDHP premium savings are combined with HSA tax benefits, members realize annual savings of approximately 16% compared to average preferred provider organization (PPO) plan costs. In 2023, this represented over $600 in savings.

How HSAs Help Organizations Combat Rising Healthcare Costs

Just as HSAs provide cost savings to employees, they also assist organizations with cost management regarding healthcare expenses. According to benefits experts, HSAs help organizations save money through two primary mechanisms.

1. Reduced Premiums with HDHPs

Pairing an HSA with a high-deductible health plan (HDHP) significantly reduces premium costs compared to traditional plans like PPOs or HMOs. Industry data shows the average HDHP premium costs $11,801, compared to $12,760 for a PPO.

Organizations calculating potential savings from HSA implementation must account for HSA contributions. However, these contributions provide tax deductions for both employees and employers. When employer tax savings are calculated, organizations save an average of 3% for every HSA participant.

When employer tax savings are calculated, organizations save an average of 3% for every HSA participant.

2. Promoting Intelligent Healthcare Spending

“HSAs encourage better consumer decision-making,” explains a benefits consulting professional. “Rather than rushing to emergency rooms and spending thousands of dollars, employees may seek urgent care or consult their primary care physician first.”

Employees may also consider purchasing generic medications instead of brand-name drugs to maximize their HSA funds. They might compare procedure costs from multiple providers and incorporate cost considerations into their decision-making process.

With HSAs, employees are motivated to spend their healthcare dollars more wisely not only because it’s their own money but also because unused funds can accumulate over time and benefit them in the future.

“Organizations experience reduced overall rising healthcare costs when employees utilize HSAs,” according to benefits experts. “With traditional PPO or HMO plans, employees simply pay their co-pays and don’t need to consider deductibles they must pay out-of-pocket.”

Maximizing the Value of HSA Implementation

HSAs provide organizations with remarkable flexibility. Organizations aren’t required to contribute specific amounts to employee accounts. In fact, they could choose not to contribute at all. However, limited HSA adoption without employer contributions poses risks.

To leverage the cost-saving benefits HSAs offer, organizations need to explore customization opportunities and develop HSA strategies tailored to their workforce.

Choose Migration Over Elimination

Forward-thinking organizations are introducing HSA plans early and providing incentives to encourage adoption.

When organizations prioritize plan migration instead of elimination, they begin saving money while preserving employees’ ability to select their preferred plans. While organizations may prefer workforce-wide HSA adoption, forcing transitions through plan elimination could create costly talent challenges.

Encourage Employee Participation

Organizations are redesigning plan structures to promote HSA participation. Traditionally, HSAs operate with seed funding—arrangements where organizations make predetermined contributions to all member accounts once or twice annually.

Organizations are moving away from this model to test innovative plan designs and their effects on employee contributions. Some organizations continue providing predetermined contributions while adding matching components. Others have abandoned seed funding and offer matching contributions exclusively.

Implement Tiered Contribution Strategies

Organizations are also exploring tiered contribution strategies. Organizations using tiered approaches provide larger seed contributions to lower-earning employees and smaller amounts to higher-earning employees.

This strategy proves particularly effective in encouraging participation among employees with limited HSA familiarity. After a major pharmaceutical company partnered with benefits consultants to introduce an HSA with four income-defined contribution levels, the organization saw 37% of lower-paid employees enroll in the plan.

5 Common HSA Contribution Strategies

Organizations can select from various HSA contribution strategies, ranging from no contributions to models that combine seed funding and matching contributions.

1. No contributions Organizations make no contributions to employee HSAs.
2. Annual seed Organizations make contributions to all employee accounts once or twice yearly.
3. Distributed seed Organizations make contributions to all employee accounts at least monthly.
4. Match Organization contributions depend on employees making payroll contributions.
5. Seed + match Organizations make contributions to all employee accounts once or twice yearly with additional contributions dependent on employee payroll contributions.

Unlock Healthcare Savings with a Custom HSA Solution

Organizations facing rising healthcare prices are understandably tempted to reduce or downgrade benefits their employees have grown to expect. However, this short-term solution often creates larger, more expensive problems, including talent retention and recruitment challenges.

HSAs offer a superior path forward. When organizations introduce HSAs, they can begin reducing healthcare costs without sacrificing benefit quality. Proactive organizations that develop custom HSA plans encourage adoption and plan migration while preserving morale and strengthening their employer brand.

As employees transition from high-cost HMO and PPO plans, organizations save on premiums and taxes. Employees, meanwhile, experience reduced financial stress as they set aside money for current health expenses and build savings for the future.