Do Employer Contributions Lead To Employee Contributions in Health Savings Accounts?

In my first post based on our new paper, Health Savers – The Consumer Finances of Health Savings Accounts, I discussed whether or not health savings account holders invest their balances. In this post I would like to share one of the most surprising and powerful findings for the HR community.

Health Care Plan Design

Employers offer a diverse range of health care plan designs. Some employers do not make any contributions on their employee’s behalves, while some employers offer an initial seed contribution to get their employees started saving for health care expenses. Others provide a match up to a certain dollar amount. Others provide a monthly, quarterly, or biannual contribution for their employees.

First, it is helpful to provide some context around employer contributions. We find that about 67 percent of employers contributed some amount of money to their employees at some point during the study period. Of these employers, we observe a median contribution of $700 and a mean contribution of nearly $1,400.

Employer Contributions Influence Employee Contributions

We see that on average, employees who have an employer making contributions on their behalf defer twice as much as an employee who does not. In a regression analysis controlling for age, income, and education, we find that an employee contributes $500 more with an employer that contributes on a monthly schedule, compared to an employee that works for a company that does not contribute on their behalf.

Employer contributions may act as a behavioral cue to employees. Much like when employers provide matching 401(k) contributions, these mechanisms have the potential to encourage workers to become more engaged with their HSAs. Perhaps when employers contribute to an employee’s account, it provides a salient signal that saving for healthcare is desirable and nudges the employee to contribute as well.

We also find an interaction between the presence of employer contributions and the number of times the employer contributes over the course of the year. After controlling for income, age, education, and dependents, an employer contribution is associated with slightly lower levels of employee contributions. However, with each additional employer contribution, employees increase their contributions. This behavior suggests that account holders may have a ‘target’ in mind, and consider their employer’s contributions when they are deciding how much to defer to their HSAs. Thus, the worker frees up discretionary dollars for uses they value more– for an emergency savings fund, retirement accounts, or saving for a vacation.

Furthermore, we found that the presence of employer contributions to their employees’ HSAs reduced the chances that employees would be disengaged from their HSAs (which we defined as an employee that doesn’t contribute or withdraw funds from their accounts).

Based on this evidence, HR departments ought to consider carefully the structure of their healthcare benefits programs. Making contributions to their employee’s accounts can encourage HSA account holders to save more, and is associated with lower levels of disengagement.



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