Health Savings Accounts (HSAs)

Summary: A health savings account (HSA) is a tax-advantaged account that individuals can use to pay for unreimbursed medical expenses (e.g., deductibles, co-payments, coinsurance, and services not covered by insurance).

Summary: Individuals may establish and contribute to an HSA for each month that they are covered under an HSA-qualified high-deductible health plan (HDHP), do not have disqualifying coverage, and cannot be claimed as a dependent on another person's tax return. The account can be established with an insurer, bank, or other Internal Revenue Service (IRS)-approved trustee and is tied to the individual. Account holders retain access to their accounts if they change employers, insurers, or subsequently obtain coverage under a non-HSA qualified plan.

Summary: To be considered an HSA-qualified HDHP, a health plan must meet several tests: it must have a deductible above a certain minimum level, it must limit total annual out-of-pocket expenditures for covered benefits to no more than a certain maximum level, and it can provide only preventive care services before the deductible is met. In 2018, HSA-qualified HDHPs must have a minimum deductible of $1,350 for self-only coverage and $2,700 for family coverage and an annual limit on out-of-pocket expenditures for covered benefits that does not exceed $6,650 and $13,300, respectively. These amounts are adjusted for inflation (rounded to the nearest $50) annually.

Summary: HSAs have annual contribution limits, which in 2018 are $3,450 for individuals with self-only coverage and $6,900 for those with family coverage. Eligible individuals may make direct contributions to their HSAs, and employers, family members, and other individuals may make contributions to an individual's HSA on the individual's behalf. In addition to the annual limit, individuals who are at least 55 years of age but not yet enrolled in Medicare may contribute an additional annual catch-up contribution of $1,000. The annual contribution limit amounts are adjusted for inflation (rounded to the nearest $50) annually, but the catch-up contribution amount is fixed. Unused balances may accumulate without limit, be invested, and carry over from year to year.

Summary: Individuals do not need to be enrolled in an HSA-eligible HDHP to make withdrawals from the account; however, any withdrawals that are not spent on qualified medical expenses for the account holder, the account holder's spouse, or the account holder's dependents generally are subject to a penalty tax. Qualified medical expenses include the costs of diagnosis, cure, mitigation, treatment, or prevention of disease and the costs for treatments affecting any part of the body; the amounts paid for transportation to receive medical care; and qualified long-term care services. In general, HSAs cannot be used to pay for health insurance premiums or over-the-counter medications.

Summary: HSAs have several tax advantages: individual contributions are tax deductible unless made through a pretax salary reduction agreement; employer contributions (including individual contributions made through pretax salary reductions) are excluded from taxable income and from Social Security, Medicare, and unemployment insurance taxes; account earnings are tax exempt; and withdrawals are not taxed if used for qualified medical expenses. However, individuals generally are penalized for withdrawing funds for nonqualified medical expenses and for making contributions above the annual HSA limit.

Summary: Although it would be beneficial to study the entire HSA population, which is the population that is eligible to establish and contribute to an HSA (i.e., enrolled in an HSA-eligible HDHP) and the population that has an HSA, few available data sources provide a comprehensive understanding of the entire HSA population. The lack of available data stems in part from the fact that HSAs and HSA-qualified HDHPs are two separate products that can be administered by two separate institutions. As a result, HSA research tends to focus on one of two populations, HSA-qualified HDHP enrollees or HSA holders. Although exact point estimates for the entire HSA/HSA-qualified HDHP population are difficult to determine, current research, when referenced collectively, can highlight various trends. Specifically, multiple different sources have demonstrated continued increases in HSA-qualified HDHP enrollment and HSAs since the mid-2000s.

Health savings accounts (HSAs) were first authorized in the Medicare Prescription Drug, Improvement, and Modernizati on Act of 2003 ( P.L. 108-173 ). HSAs are one type of health-related tax-advantaged account that individuals can use to pay for unreimbursed medical expenses (e.g., deductibles, co-payments, coinsurance, and services not covered by insurance).

Generally, individuals are eligible to establish and contribute to an HSA if they have coverage solely under an HSA-qualified high-deductible health plan (HDHP). The HSA is tied to the individual, and account holders retain access to their HSAs if they change employers, insurers, or subsequently obtain coverage under a non-HSA qualified plan. Eligible individuals may make direct contributions to their HSAs, and employers, family members, and other individuals may make contributions to an individual's HSA on the individual's behalf. Unused balances may accumulate without limit, be invested, and carry over from year to year. Individuals do not need to be enrolled in an HSA-eligible HDHP to make withdrawals from the account; however, any withdrawals that are not spent on qualified medical expenses for the account holder, the account holder's spouse, or the account holder's dependents are subject to a penalty tax, with some exceptions.

HSAs have several tax advantages: individual contributions are tax deductible unless made through a pretax salary reduction agreement (see " Allowable Contributors "); employer contributions (and pretax salary reductions) are excluded from taxable income and from Social Security, Medicare, and unemployment insurance taxes; withdrawals are not taxed if used for qualified medical expenses; and account earnings are tax exempt.

This report summarizes the principal rules governing HSAs, covering such matters as eligibility, qualifying health insurance, contributions, withdrawals, and tax advantages. It concludes with a discussion of HSA data limitations and recent research findings on HDHP enrollment and HSA utilization trends.

Eligibility to Establish and Contribute to an HSA

Individuals are eligible to establish and contribute to an HSA if they have coverage under an HSA-qualified HDHP, do not have disqualifying coverage (disqualifying coverage is discussed in the section, " Disqualifying Coverage "), and cannot be claimed as a dependent on another person's tax return.

Whether someone qualifies for an HSA is determined as of the first of each month; thus, a person might be eligible to contribute to an HSA in some months but not in others. For example, if someone first enrolled in an HDHP on September 15, his or her HSA eligibility period would begin on October 1 of that year. Individuals may keep their HSAs and withdraw funds if they become ineligible but cannot make contributions until they become eligible once again.

All eligible individuals have the flexibility to establish an HSA with an institution other than their insurer, if at all. Accounts may be established with banks, insurance companies, or other entities approved by the Internal Revenue Service (IRS) to hold individual retirement accounts (IRAs) or Archer medical savings accounts (Archer MSAs). Additional nonbank entities may become an HSA trustee or custodian but first must request approval from the IRS.

HSA-Qualified High-Deductible Health Plans

To be HSA qualified, a health plan must meet several tests: it must have a deductible above a certain minimum level, it must limit out-of-pocket expenditures for covered benefits to no more than a certain maximum level, and it can cover only preventive care services before the deductible is met. (See Table 1 for the minimum deductibles and out-of-pocket limits for 2018.) In addition, the plan's coverage cannot be limited to a narrow set of services, such as coverage for a particular disease (e.g., cancer-only coverage) or vision-only coverage. This rule is designed to prevent individuals from establishing and making HSA contributions when the only insurance they have is coverage for a narrow class of benefits.

To be HSA qualified, a health plan's annual deductible in 2018 must be at least $1,350 for self-only coverage; for family coverage, it must be at least $2,700. These amounts are adjusted for inflation (rounded to the nearest $50) annually.

In addition, a health plan is required to take into account only usual, customary, and reasonable charges for covered benefits that are provided in network when determining whether deductibles are met. Premiums cannot be included in meeting the deductible.

If a health plan has deductible (and co-payment) requirements for prescription drugs that are different than requirements for other benefits, in order for the plan to be HSA qualified, the prescription drug deductible still must meet the same minimum requirements.

If an enrollee uses a prescription or other discount card that reduces the amount that the enrollee pays out of pocket for certain items or services, then an HSA-qualified plan nonetheless must count the full amount (what the enrollee paid out of pocket plus the amount of the discount) toward meeting the plan's deductible.

To be HSA qualified, a health plan's annual limit on out-of-pocket expenditures for covered benefits must not exceed $6,650 in 2018 for self-only coverage. For family policies, the limit must not exceed $13,300. These amounts are adjusted for inflation (rounded to the nearest $50) annually.

All enrollee cost sharing—deductibles, co-payments, and coinsurance—for in-network coverage provided under the HSA-qualified HDHP is taken into account in determining whether the out-of-pocket limits are exceeded. However, these limits should not be interpreted as ceilings on all out-of-pocket expenditures for health care. Enrollee payments to providers for benefits provided out of network or not covered by the HSA-qualified HDHP do not count toward the out-of-pocket limit, nor do premiums for the HSA-qualified HDHP and any other insurance. Even for covered benefits provided in network, the limits apply only to payments for usual, customary, and reasonable charges , as defined in the previous section.

Health plans that otherwise meet the requirements to be HSA qualified are not disqualified if they do not have a deductible for preventive care services, as defined in the Internal Revenue Code and IRS-issued guidance, or if they have a deductible less than the aforementioned minimum annual deductible for those services. IRS guidance provides that preventive care includes, but is not limited to, periodic health evaluations (including tests and diagnostic procedures ordered in connection with routine examinations), routine prenatal and well-child care, immunizations, tobacco cessation programs, obesity weight-loss programs, and various screening services. Drugs and medications can be considered preventive care when taken by a person who has developed risk factors for a disease or is preventing its recurrence. In general, preventive care does not include services or benefits intended to treat existing illnesses, injuries, or conditions, although an exception is allowed when the treatment is incidental to a preventive care service and it would be unreasonable or impracticable to perform another service for treatment.

Additionally, HSA-qualified HDHPs are required to comply with the federal requirement in Section 2713 of the Public Health Service Act to provide specified preventive care services without imposing cost sharing. For this requirement, preventive care includes evidenced-based services that have in effect a rating of "A" or "B" in the current recommendations of the United States Preventive Services Task Force, routine immunizations, and other evidence-based preventive care and screenings for women and children. Because this requirement provides that health plans, including HSA-qualified HDHPs, cannot impose any cost sharing for the specified preventive services, all such services must be covered by HSA-qualified HDHPs before the plan's deductible is met.

There are a number of ways in which an individual could be disqualified from establishing and contributing to an HSA, even if the individual has coverage under an HSA-qualified HDHP.

Individuals generally must not have any other health coverage that is not an HSA-qualified HDHP or that provides coverage for any benefit that is covered under their HSA-qualified HDHP. For example, individuals with an HSA-qualified HDHP are not eligible to establish or contribute to an HSA if they also are covered under a spouse's policy that is not an HSA-qualified HDHP for the same benefits.

Individuals are not allowed to establish or contribute to an HSA if they are enrolled in Medicare, which generally first occurs at the age of 65.

Some types of health coverage are not considered disqualifying for purposes of being eligible to establish and contribute to an HSA. Coverage for any benefit provided under permitted insurance, and coverage (through insurance or otherwise) for accidents, disability, vision care, dental care, or long-term care, is not considered disqualifying health coverage.

HSA-qualified HDHP enrollees who do not have disqualifying coverage still are considered HSA eligible even if they have access to and coverage under an employee assistance program, disease management program, or wellness program, provided the program does not provide "significant benefits in the nature of medical care or treatment." HSA-qualified HDHP enrollees who receive treatment under the Veterans Health Administration, within the Department of Veterans Affairs, for service-connected disabilities also are still HSA-eligible.

HSA-eligible individuals generally may not have employer-established flexible spending accounts and health reimbursement accounts, which are two other types of health-related tax-advantaged accounts, unless these accounts (1) are for limited purposes (for example, dental services or preventive care), (2) provide reimbursement for services covered by the HSA-qualified HDHP only after the qualifying deductible is met, or (3) are used in retirement.

HSAs have annual contribution limits. In 2018, the annual contribution limit is $3,450 for self-only coverage and $6,900 for family coverage. The applicable annual limits apply to total contributions to the HSA from all sources (e.g., from individuals and employers). These amounts are adjusted for inflation (rounded to the nearest $50) annually. In addition to the annual limit, account holders who are at least 55 years of age may contribute an additional catch-up contribution of $1,000 each year, which is not annually indexed for inflation. Where applicable, these annual limits must be reduced by the amount of any contributions individuals make to their Archer MSAs during the same year or for any direct contributions from traditional or Roth IRAs, the latter of which is discussed further later in this section.

Contributions to HSAs may be made at any time during a calendar year and until the federal income tax return filing date (without extensions), normally April 15 of the following year. Thus, contributions could occur over a 15½-month time span (e.g., from January 1, 2018, through April 15, 2019), provided they do not exceed the allowable annual limit.

The annual limits are calculated on a monthly basis: for each month during the year when individuals are eligible, they may contribute (or others may contribute on their behalf) up to one-twelfth of the applicable annual limit. For example, an individual who is eligible from January through July could contribute seven-twelfths of the annual limit for that year.

As an exception to this rule, individuals who are eligible during the last month of the year are treated as if they had been eligible for that entire year and thus are allowed to contribute up to the annual limit so long as the contribution is before the tax filing date of the following year (see below). Individuals who make contributions under this rule must maintain their HSA eligibility for the entire following year, the testing period , except in cases of disability or death. Otherwise, the additional contributions are included in gross income when determining federal income taxes for the year in which an individual fails to be a HSA eligible and, as shown in Table 2 , are subject to a 10% penalty tax.

Any excess contributions to an HSA are not tax deductible and, if made by an employer, are treated as gross income for the tax year in which the contributions were earned. Excess contributions generally are subject to a 6% penalty tax, unless the excess amounts are withdrawn prior to the tax filing date of the year the excess contributions were made. If not withdrawn, this penalty tax would apply to each tax year the excess contributions remain in the account.

Eligible individuals may make direct contributions to their HSAs, and employers, family members, and other individuals may make contributions to an individual's HSA on the individual's behalf. Contributions by one individual or entity do not preclude contributions by others, provided the total amount of contributions does not exceed annual contribution limits.

Employed individuals may make HSA contributions through pretax salary reduction agreements —that is, benefit arrangements established by employers under which employees accept lower take-home pay in exchange for the difference being deposited in their benefit account. Because these types of individual contributions are excluded from gross income, they are not tax deductible. The IRS has determined that salary reduction agreements must allow employees to stop, increase, or decrease their HSA contributions throughout the year as long as the changes are effective prospectively; however, employers may place restrictions on HSA contribution elections under this type of arrangement if the restrictions apply to all employees. The IRS also has determined that these agreements allow employers to make an employee's annual expected HSA contribution available to the employee so that the employee may cover medical expenses that exceed his or her current HSA balances, provided the employee repays the accelerated contributions before the end of the year.

HSA contributors cannot restrict how HSA funds are used. For example, employers may not limit HSAs to certain medical expenses (or medical expenses only), even for funds they contribute. Therefore, account owners may make withdrawals for any purpose, though nonqualified withdrawals are subject to taxation, as discussed in the section " Nonqualified Expenses ."

Eligible individuals may use other tax-advantaged accounts to increase the amount of resources available in their HSAs. Specifically, individuals may make one rollover contribution to an HSA from an Archer MSA or another HSA during a one-year period. Individuals also may make a once-in-a-lifetime distribution from their traditional or Roth IRA and deposit it into an HSA, which is factored into the annual contribution limits described in the " Contribution Limits " section. These types of HSA contributions are subject to different tax rules than regular HSA contributions, as discussed in the " Tax Advantages of HSAs " section.

An account holder may withdraw HSA funds at any time. Generally, withdrawals must be used for qualified medical expenses for the account holder, the account holder's spouse, or the account holder's dependents. Any withdrawals for nonqualified expenses must be included in the account holder's gross income when determining federal income taxes and are subject to an additional 20% penalty. Neither the account holder nor the account holder's spouse or dependents need to be covered under the same or separate HSA-qualified HDHPs for the account holder to withdraw funds. Likewise, having disqualifying coverage would not prohibit an account holder from withdrawing HSA funds. For example, an account holder who enrolls in Medicare Parts A and B becomes ineligible to establish or contribute to an HSA, but the account holder may continue to withdraw funds from a previously established HSA.

As noted above, HSA withdrawals are exempt from federal income taxes if used to cover qualified medical expenses for the account holder, the account holder's spouse, or the account holder's dependents. HSA withdrawals remain exempt from federal income taxes even if these individuals are not covered under an HSA-qualified HDHP or have disqualifying coverage.

For HSA purposes, q ualified medical expenses are considered most medical care described in 26 U.S.C. §213(d) and further explained in IRS publication 502, Medical and Dental Expenses. More specifically, qualified medical expenses are defined as including the following: the costs of diagnosis, cure, mitigation, treatment, or prevention of disease and the costs for treatments affecting any part of the body; the amounts paid for transportation to receive medical care; and qualified long-term care services.

However, of the medical expenses mentioned in 26 U.S.C. §213(d), health insurance premiums and over-the-counter medicines (i.e., medicines available without a prescription) are not considered qualified medical expenses for HSA purposes.

In general, HSAs cannot be used to pay health insurance premiums. However, premiums for four types of insurance are considered to be qualified HSA expenses: (1) long-term care insurance, (2) health insurance premiums during periods of continuation coverage required by federal law (e.g., Consolidated Omnibus Budget Reconciliation Act coverage, or COBRA), (3) health insurance premiums during periods in which the individual is receiving unemployment compensation, and (4) for individuals aged 65 years and older, any health insurance premiums (including Medicare Part B premiums) other than a Medicare supplemental policy.

There is no time limit on when HSA withdrawals need to be made to pay for (or reimburse payments for) qualified medical expenses, provided adequate records are kept. However, HSAs may not be used to pay expenses incurred before the HSA was established. For example, an account holder may pay 2017 qualified medical expenses today using funds from an HSA established in 2016 but may not use the account to pay for qualified medical expenses incurred in 2015, since this was before the account was established.

Withdrawals not used to pay for qualified medical expenses must be included in the account holder's gross income when determining federal income taxes and are subject to a 20% penalty, as shown in Table 2 . The penalty is waived in cases of disability or death and for individuals aged 65 and older; however, withdrawals for nonqualified expenses still may be treated as gross income. There is no requirement, as there is for qualified retirement plans, that individuals begin to spend down account balances at a certain age.

HSAs often are referred to as having a triple tax advantage : (1) contributions reduce taxable income, (2) earnings on the account grow tax free, and (3) withdrawals for qualified medical expenses are not subject to taxation.

Qualified individuals who contribute to their HSAs may claim a deduction on their federal income tax return and thus reduce their tax burden, as shown in Table 3 . The deduction is above the line ; that is, it is made in determining adjusted gross income and may be taken by taxpayers regardless of whether they claim the standard deduction or the itemized deduction.

Individuals may claim the tax deduction for all amounts contributed to their HSAs that were made either by the individual or on behalf of the individual (not including employer amounts or contributions made through a pretax salary reduction agreement) over the course of the year through the subsequent tax filing deadline. For individuals claiming the deduction, the total tax effect of the eligible HSA contributions depends on an individual's marginal tax rate and the amount of nonemployer contributions to the individual's HSA.

No deduction may be claimed for a once-in-a-lifetime contribution from an IRA (though the IRA distribution is not penalized, as it otherwise might be) or for Archer MSA or other HSA rollovers. These amounts do not count as gross income in determining income tax liability.

An employer's contributions to an HSA cannot be deducted by employees as HSA contributions or as medical expense deductions; however, they are excluded from employees' gross income in determining their income tax liability. In addition, the employer's contributions are excluded from Social Security and Medicare taxes for both employers and employees and are excluded from federal unemployment insurance taxes. If an employee contributes to his or her HSA through a pretax salary reduction agreement, the contributions are considered to be made by the employer and are excluded from the employee's gross income in determining his or her income tax liability and are exempt from the three employment taxes (Social Security, Medicare, and unemployment insurance taxes). An employee cannot deduct amounts contributed to an HSA through a pretax salary reduction agreement.

HSA balances can be invested similar to IRAs (e.g., annuities, stocks, mutual funds, bonds, etc.), and any associated earnings can accumulate tax free.

State income taxes generally follow federal rules with respect to deductions and exclusions. However, some states may choose to provide different treatment. For example, California does not recognize HSAs as tax-advantaged accounts. Therefore, a California taxpayer who contributed to an HSA is required to increase his or her California adjusted gross income by an amount equal to the sum of the taxpayer's HSA deduction on his or her federal return, the interest earned on the HSA, and the contributions made by the taxpayer's employer. This increase results in a larger state tax burden (or a smaller state tax refund) for the taxpayer.

Although it would be beneficial to study the entire HSA population, which is the population that is eligible to establish and contribute to an HSA (i.e., enrolled in an HSA-eligible HDHP) and the population that has an HSA, few available data sources provide a comprehensive understanding of the entire HSA population. The lack of available data stems in part from the fact that HSAs and HSA-qualified HDHPs are two separate products. Although these two product populations overlap, they are not entirely identical, since not all HSA-qualified HDHP enrollees have established an HSA and not all HSA holders currently are enrolled in an HSA-qualified HDHP.

Furthermore, these products often can be administered by two separate institutions. Some individuals have their HSA established with their insurer, whereas others have their HSA administered by another type of institution, such as a bank. In the latter case, the insurer would not have any information regarding the individuals' HSAs (i.e., contributions, investments, or withdrawals). Inversely, the HSA holding institution likely would not be aware of the individuals' enrollment in or disenrollment from an HSA-qualified HDHP.

As a result, HSA research tends to focus on one of two populations, HSA-qualified HDHP enrollees or HSA holders. In light of these and other methodological limitations, existing HSA studies that rely on surveys of insurers, businesses, or HSA administrators or aggregate IRS tax data can often produce discrepancies in findings and make direct data comparisons difficult. In addition, there may be no data sources to answer key questions of interest, for example, how many individuals eligible to open an HSA or eligible to make an HSA contribution do so. Although exact point estimates for the entire HSA/HSA-qualified HDHP population are difficult to determine, current research, when referenced collectively, can highlight various trends. The next section highlights selected findings related to enrollment and contributions from a variety of commonly cited data sources.

Multiple different sources have demonstrated continued increases in HSA-qualified HDHP enrollment and HSAs since the mid-2000s. With respect to HSA-qualified HDHP enrollees, a report using survey data from insurers has shown a continued increase in enrollment in HSA-eligible HDHPs sold by commercial insurers in the individual and the small- and large-group markets from 2005 through 2017. A report using survey data from employers with three or more workers has shown an increase in the percentage of covered employees in HSA-eligible HDHPs between 2006 and 2017. This survey of employers also revealed that larger employers are more likely than smaller employers to offer HSA-eligible HDHPs to employees. Specifically, in 2017, employers with 200 or more workers were more likely than employers with 3 to 199 workers to offer HSA-eligible HDHPs to employees.

Similar to HDHP enrollment, multiple sources have indicated an increase in the number of HSA accounts. IRS tax return filer data have shown an increase in the number of tax filers reporting HSA contributions or withdrawals from 2004 to 2012, and HSA account administrator data have shown an increase in the number of accounts from 2011 to 2016.

With respect to HSA contributions, the aforementioned sample of HSA account administrator data reveals that around half of account holders individually contributed to their HSAs in 2016 and around half received an employer contribution. With respect to employer contributions, two studies using HSA account administrator data from 2016 showed that HDHP-enrolled employees (who made contributions to HSAs) made an average employee contribution equal to roughly twice the average amount made by employers (that made contributions).

The study of IRS tax filings from 2004 to 2012 indicated that the likelihood of contributing to an HSA increased with tax filer's age from 20 to about 45. The study also showed that, across all ages, the likelihood of tax filers contributing to an HSA and the likelihood of tax filers with an HSA maximizing their contributions (both individual and employer) increased across each income quintile. Finally, the analysis of HSA administrator data revealed that very few HSAs (fewer than 4% in 2016) have investments other than cash within the account, with older accounts being more likely than newer accounts to have invested funds.

Question: Under what circumstances can individuals establish and contribute to an HSA?

Answer: Individuals may establish and contribute to an HSA for each month that they are covered under an HSA-qualified high-deductible health plan (HDHP), do not have disqualifying coverage, and cannot be claimed as a dependent on another person's tax return.

Question: How can the account be established?

Answer: The account can be established with an insurer, bank, or other Internal Revenue Service (IRS)-approved trustee and is tied to the individual.

Question: How can account holders retain access to their accounts?

Answer: Account holders retain access to their accounts if they change employers, insurers, or subsequently obtain coverage under a non-HSA qualified plan.

Eligibility to Establish and Contribute to an HSA

Question: How can a health plan be considered a HSA-qualified HDHP?

Answer: To be considered an HSA-qualified HDHP, a health plan must meet several tests: it must have a deductible above a certain minimum level, it must limit total annual out-of-pocket expenditures for covered benefits to no more than a certain maximum level, and it can provide only preventive care services before the deductible is met.

Question: What deductible limits for HSA-qualified HDHPs existed in 2018?

Answer: In 2018, HSA-qualified HDHPs must have a minimum deductible of $1,350 for self-only coverage and $2,700 for family coverage and an annual limit on out-of-pocket expenditures for covered benefits that does not exceed $6,650 and $13,300, respectively.

Question: How are these limits adjusted?

Answer: These amounts are adjusted for inflation (rounded to the nearest $50) annually.

HSA-Qualified High-Deductible Health Plans

Question: What contribution limits do HSAs have?

Answer: HSAs have annual contribution limits, which in 2018 are $3,450 for individuals with self-only coverage and $6,900 for those with family coverage.

Question: To what HSAs can individuals make contributions?

Answer: Eligible individuals may make direct contributions to their HSAs, and employers, family members, and other individuals may make contributions to an individual's HSA on the individual's behalf.

Question: What special additional contributions exist?

Answer: In addition to the annual limit, individuals who are at least 55 years of age but not yet enrolled in Medicare may contribute an additional annual catch-up contribution of $1,000.

Question: How are these limits adjusted?

Answer: The annual contribution limit amounts are adjusted for inflation (rounded to the nearest $50) annually, but the catch-up contribution amount is fixed.

Question: What can unused balances be used for?

Answer: Unused balances may accumulate without limit, be invested, and carry over from year to year.

HSA Contributions
Allowable Contributors

Question: Under what circumstances can individuals establish and contribute to an HSA?

Answer: Individuals may establish and contribute to an HSA for each month that they are covered under an HSA-qualified high-deductible health plan (HDHP), do not have disqualifying coverage, and cannot be claimed as a dependent on another person's tax return.

Question: How can the account be established?

Answer: The account can be established with an insurer, bank, or other Internal Revenue Service (IRS)-approved trustee and is tied to the individual.

Question: How can account holders retain access to their accounts?

Answer: Account holders retain access to their accounts if they change employers, insurers, or subsequently obtain coverage under a non-HSA qualified plan.

Question: How can a health plan be considered a HSA-qualified HDHP?

Answer: To be considered an HSA-qualified HDHP, a health plan must meet several tests: it must have a deductible above a certain minimum level, it must limit total annual out-of-pocket expenditures for covered benefits to no more than a certain maximum level, and it can provide only preventive care services before the deductible is met.

Question: What deductible limits for HSA-qualified HDHPs existed in 2018?

Answer: In 2018, HSA-qualified HDHPs must have a minimum deductible of $1,350 for self-only coverage and $2,700 for family coverage and an annual limit on out-of-pocket expenditures for covered benefits that does not exceed $6,650 and $13,300, respectively.

Question: How are these limits adjusted?

Answer: These amounts are adjusted for inflation (rounded to the nearest $50) annually.

Question: What contribution limits do HSAs have?

Answer: HSAs have annual contribution limits, which in 2018 are $3,450 for individuals with self-only coverage and $6,900 for those with family coverage.

Question: To what HSAs can individuals make contributions?

Answer: Eligible individuals may make direct contributions to their HSAs, and employers, family members, and other individuals may make contributions to an individual's HSA on the individual's behalf.

Question: What special additional contributions exist?

Answer: In addition to the annual limit, individuals who are at least 55 years of age but not yet enrolled in Medicare may contribute an additional annual catch-up contribution of $1,000.

Question: How are these limits adjusted?

Answer: The annual contribution limit amounts are adjusted for inflation (rounded to the nearest $50) annually, but the catch-up contribution amount is fixed.

Question: What can unused balances be used for?

Answer: Unused balances may accumulate without limit, be invested, and carry over from year to year.


Workforce Investment Act: Local Areas Face Challenges Helping Employers Fill Some Types of Skilled Jobs

The economy is recovering from the recession, but employers still have difficulty filling certain jobs. DOL's Workforce Investment Act (WIA) Adult and Dislocated Worker programs are designed in part to help employers find the skilled workers they need. The programs provide participants with services including job training, which must be for occupations that are in demand. However, questions have been raised about the extent to which these programs are positioned to help supply workers for jobs that employers have difficulty filling. The conference report accompanying the Consolidated Appropriations Act of 2012 mandated that GAO assess the Adult and Dislocated Worker programs. This report addresses (1) how local workforce areas have identified occupations that are in demand and how they have guided participants toward training for them; and (2) what challenges local workforce areas have faced in helping employers fill certain jobs. GAO conducted a web-based survey of a nationally representative sample of 200 local workforce investment boards (WIB), which oversee local workforce areas, and used the results to create estimates about the population of all WIBs nationwide. GAO also interviewed DOL officials and workforce organizations.

Based on survey results for calendar year 2012, GAO estimates that most local areas used various sources of information to identify occupations that are in demand (i.e., available jobs and occupations that are projected to grow). Local areas found all of the sources of information they used to be at least moderately useful. To identify occupations that are in demand, GAO estimates that nearly 90 percent of local areas used state job banks and occupational projections, both of which are funded by the Department of Labor (DOL). All percentages presented on this highlights page are estimates from the survey and have a sampling error of no larger than plus or minus 7 percentage points. In addition, 93 percent of areas used at least one local initiative, such as a partnership with the local economic development agency, to identify such jobs. As compared to other sources, areas reported using local initiatives because they provided more detailed information and better reflected local employers' needs. To guide participants toward training, most local areas required them to complete certain activities, such as meeting with a case manager to discuss training options (80 percent) or completing a skills assessment (78 percent). Most local areas faced challenges in guiding participants toward training. Specifically, local areas faced challenges related to participants' lack of financial or work supports, such as child care or transportation (67 percent); participants' lack of the basic skills necessary even to participate in training (66 percent); difficulty finding training providers who could quickly adapt curricula to employers' changing needs (62 percent); and high training costs (54 percent). However, in 57 percent of local areas, these challenges did not affect their ability to guide participants toward training.

Local areas had difficulty helping employers fill certain jobs for a variety of reasons, including the low skills of some participants, according to GAO estimates. Eighty percent of local areas reported that employers had difficulty filling certain jobs, some of which can be considered "middle-skilled" jobs, such as welders and machinists, because they require more than a high-school diploma but less than a 4-year college degree. These local areas had difficulty supplying such workers because participants lacked relevant qualifications or the basic skills needed to participate in related training, among other reasons. To help participants improve their skills, DOL and other agencies have encouraged the use of career pathways approaches that combine job training with basic skills education and support services. According to these agencies, such approaches aim to enable participants to secure industry relevant certification and obtain employment within an occupational area and advance to higher levels of future education and employment in the area. However, little is known about the extent to which local areas are using career pathways approaches--or how they are using these approaches--specifically to prepare participants for middle-skilled jobs that employers have had difficulty filling. Without information on whether and how local areas are using these approaches to prepare participants for such jobs, DOL may not be well-positioned to help local areas use these approaches to better meet employers' needs.

GAO recommends that DOL collect and disseminate information on how local areas have used career pathways approaches to prepare workers for middle-skilled jobs that employers have difficulty filling. DOL agreed with our recommendation..

The economy is recovering from the recession, but employers are still  having difficulty filling certain jobs. The Department of Labor’s (DOL)  Workforce Investment Act (WIA) Adult and Dislocated Worker programs  are designed to help jobseekers find employment and to help employers  find the skilled workers they need. In program year 2011, these programs  provided job training to over 250,000 participants, or about 13 percent of  all WIA participants, according to DOL’s published data on participants  who exited the programs. WIA requires this training to be for occupations  that are in demand, also known as demand occupations. State and local  workforce investment boards (WIB) are responsible for administering WIA  activities in approximately 600 local areas across the country. To help  local workforce areas identify demand occupations, DOL funds a variety  of sources of labor market information that are provided by states. Local  areas may also undertake additional initiatives to identify such jobs.

Previous research has shown that local workforce areas identify demand  occupations and use that information to guide participants in the WIA  Adult and Dislocated Worker programs toward training. However,  questions have been raised about the labor market information that  informs these programs and the extent to which the programs are  positioned to help supply workers for jobs that employers have had  difficulty filling. The conference report accompanying the Consolidated   mandated that GAO assess the Adult and  Appropriations Act of 2012Dislocated Worker programs. This report addresses (1) how local  workforce areas have identified occupations that are in demand and how  they have guided participants toward training for them; and (2) what  challenges local workforce areas have faced in helping employers fill  certain jobs.

In designing the sample, we did not consider indicators of the size of the local areas  overseen by WIBs, such as population or amount of WIA funding received, because such  data were not readily available. and the challenges they faced in doing so; and 3) whether employers in  their areas have had difficulty filling certain jobs, and if so, the challenges  they have faced in helping employers fill those jobs. We did not conduct a  skills gap analysis because reliable data were not available. This report  does not contain all the results from the survey. The survey and a more  complete tabulation of the results can be viewed at GAO-14-20SP. We  also interviewed DOL officials as well as representatives from national  workforce associations and organizations with expertise in workforce  issues. See appendix I for more information on our scope and  methodology.

We conducted this performance audit from July 2012 to December 2013  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The WIA Adult and Dislocated Worker programs provide employment  services to a wide range of participants. The Adult Program serves all  individuals age 18 and older, and the Dislocated Worker Program serves  individuals who have been or will be terminated or laid off from  employment, among others. The Adult Program prioritizes certain  services for recipients of public assistance and other low-income  individuals when program funds are limited. To allow individuals to  participate, both programs offer supportive services such as  transportation, childcare, housing, and needs-related payments under  certain circumstances. WIA requires that the Adult and Dislocated  Worker programs and other federally funded employment and training  programs provide services through one-stop centers—now called  American Job Centers—so that jobseekers and employers can find  assistance at a single location.

DOL’s Employment and Training Administration (ETA) administers the  Adult and Dislocated Worker programs and oversees their  implementation, which is carried out by states and localities. WIA requires  that each state have one or more local workforce investment areas, each  governed by a local workforce investment board (WIB). WIBs’  responsibilities include setting policy and overseeing service delivery for  the local workforce area, coordinating workforce investment activities with  economic development strategies, and developing relationships with  employers. Our previous work has identified innovative collaborations  used by some WIBs to help employers meet their needs for workers with  certain skills, among other needs. WIBs also select the entities to  operate American Job Centers and conduct oversight of the American  Job Center network.

The Adult and Dislocated Worker programs provide participants with a  variety of employment services. The programs provide three levels of  service: core, intensive, and training.

Core services include basic services such as job searches and labor  market information, and may be accessed with or without staff  assistance.  Intensive services include such activities as comprehensive  assessment and case management, which require greater staff  involvement. Intensive services are available to participants who are  unable to obtain or retain employment after receiving at least one core  service.

Training services include such activities as occupational skills or on- the-job training. In order to be eligible for training services,  participants must: 1) be unable to obtain or retain employment after  receiving at least one intensive service; 2) be in need of training; and  3) have the skills and qualifications to successfully complete the  training program, among other requirements.

To determine whether participants need training and to assess their skills,  WIBs may require them to complete certain activities. We previously  found that most WIBs required participants to complete skills  assessments or tests and gather information about the occupation for   After  which they wanted training before entering a training program. participants are determined to be eligible for training, DOL requires that  they select approved training providers in consultation with case  managers, but participants ultimately choose the training programs in  which they participate.demand occupations, which DOL interprets to include both currently   WIA requires that training be directly linked to  available jobs as well as occupations that are projected to grow in the  future.

In fiscal year 2013, the Adult and Dislocated Worker programs received a  total of about $1.9 billion in appropriations, down from about $2.5 billion in  fiscal year 2000 (a 24 percent reduction). funding allocations, states must meet agreed upon levels of performance.  WIA requires performance measures that gauge program results for  jobseekers in the areas of entered employment, employment retention,  earnings, and credential attainment. In addition, WIA requires measures  of customer satisfaction for jobseekers and for employers. States may  request waivers to report performance measures known as common  measures, which do not include credential attainment. WIA requires  states to negotiate performance levels with DOL and holds states  accountable for achieving these levels by tying them to financial sanctions  and incentive funding.

Sources of Information for Identifying Demand Occupations

Fiscal year 2000 appropriations are presented in nominal dollars and are not adjusted  for inflation. addition, local areas may undertake other initiatives to identify demand  occupations.

Local Areas Used Various Sources to Identify Demand Occupations and Required Participants to Complete Certain Activities before Entering Training

Most Local Areas Used a Variety of Sources to Identify Demand Occupations

We estimate that a majority of local areas used various sources of  information to identify demand occupations (see fig. 1). All but one of  these sources—online job postings, which are funded by private  companies and organizations—are funded primarily by DOL and provided  by state labor market information offices or state workforce agencies. The  sources local areas used the most were state job banks and industry and  occupational projections. Specifically, we estimate that nearly 90 percent  of local areas used state job banks to identify available jobs, and nearly  90 percent of local areas used industry and occupational projections to  identify occupations that are projected to grow.

Local areas found all of the sources of information they used to identify  demand occupations at least moderately useful. Local areas found  regional labor market analysts or economists the most useful of the  sources for identifying occupations that are projected to grow, although  they used them slightly less than industry and occupational projections,  as shown in figure 1 above. However, 28 percent of local areas did not  have access to such analysts or economists because their states did not  employ them or did not know whether their states employed them.

In addition to using these sources of information, most of which are  provided by state agencies, we estimate that 93 percent of all areas  undertook at least one local initiative to identify demand occupations. DOL encourages areas to use local initiatives to identify such  occupations. Specifically, DOL has issued guidance encouraging local  areas to use information from employers and economic development  partnerships, among other sources, to identify available jobs and  occupations that are projected to grow. As compared to other sources of  information, about 90 percent of areas used local initiatives for at least  one of the following reasons:

They more accurately reflected the current and expected needs of  local employers.

They provided more detailed information.

The confidence interval for the estimate of 93 percent is 88 to 97 percent. the state labor market information office, state workforce agency, or state  or local economic development agency, while about one-third purchased  it from private companies. Of the local initiatives, areas found discussions  or focus groups with employers about their hiring plans or skill needs  most useful for identifying demand occupations.

Most of the areas that undertook local initiatives used WIA funding to  support them (see fig. 3). Some local areas also used other funding  sources—such as the Employment Service (Wagner-Peyser) program,  the state workforce agency, economic development agencies, and private  funding—to support these initiatives.

We estimate that, in 2012, a majority of local areas required participants  to complete certain activities before entering a training program (see fig.  4).case managers to discuss labor market information and training options;  2) complete a skills or interest assessment; or 3) obtain information about  the occupation for which they wanted training. When local areas did not  require participants to complete these activities, they typically encouraged  participants to complete them.

For example, many local areas required participants to: 1) meet with  In half of local areas, employment prospects were greater outside the  local area than inside the area. When employment prospects were  greater in neighboring areas, we estimate that 62 percent of local areas  guided participants toward training for those jobs to a large or moderate  extent.

Most Local Areas Overcame Challenges in Guiding Participants Toward Training

Most local areas faced challenges in guiding participants toward training,  but were still able to guide them toward training. We estimate that two- thirds of local areas faced major or moderate challenges related to (1)  participants’ lack of financial or work supports, such as child care or  transportation, and (2) participants’ lack of basic skills necessary to  participate in training, such as reading and math skills (see fig. 5). In 57  percent of local areas, however, the challenges they experienced did not  negatively affect their ability to guide participants toward training. In the  38 percent of local areas where these challenges had a negative effect,  more than half of areas guided fewer participants toward training, and  one-third guided fewer participants toward their first choice of training.

Local Areas Had Difficulty Helping Employers Fill Certain Jobs for a Variety of Reasons, Including the Low Skills of Some Participants

Challenges in Helping Fill Jobs Included Participants’ Lack of Qualifications and Basic Skills

Local areas cited a variety of reasons why they had difficulty helping  employers fill certain jobs in 2012, including participants’ lack of relevant  qualifications and basic skills, according to GAO estimates. Eighty  percent of local areas we surveyed said that employers had difficulty  filling jobs in certain occupations. Local areas most frequently cited the  following jobs as those that employers had difficulty filling: welders,  machinists, heath care occupations, computer occupations, and truck  drivers (see app. II for a complete list of occupations identified by WIBs  as those that employers had difficulty filling). In almost all cases, the  WIBs we surveyed also identified these as high growth occupations in  their local areas. According to workforce experts, some of these jobs,  such as welders and machinists, can be considered “middle-skilled” jobs  because they require more than a high-school diploma but less than a 4- year college degree. Other jobs that require a 4-year degree or more— such as some registered nurses—are considered “high-skilled” jobs. Of  the local areas that reported that employers had difficulty filling certain  jobs and were able to identify these jobs, 81 percent indicated that  employers used American Job Centers to try to fill these positions.  Among the most common reasons why these local areas had difficulty  supplying such workers were participants’ lack of relevant qualifications  and lack of the basic skills needed to participate in training (see fig. 6).  While DOL officials said that local areas should provide participants who  lack skills and work supports with the services they need to enter training  for middle-skilled jobs, they said it is not realistic to expect the Adult and  Dislocated Worker programs to train low-skilled participants for high- skilled positions that require advanced degrees, due to the skill level and  length of training required. However, DOL officials noted that these  programs do serve some middle- and high-skilled participants who obtain  employment after receiving only core services.

In addition, workforce experts cited decreased funding and the lack of a  performance measure on skill improvement as additional challenges. WIA  funding has decreased by 24 percent since 2000, and experts we  interviewed told us that local areas face difficult tradeoffs in making  decisions about spreading limited training funds over a broad population  of participants. Specifically, they said that because it takes more time and  resources to prepare low-skilled participants to enter training, local areas  must balance helping low-skilled workers improve their skills with serving  as many individuals as possible. In addition, experts noted that WIA does  not currently have a performance measure to track improvements in  participants’ basic skills. Workforce experts we interviewed said that  current measures reward states and local areas for placing participants  into employment quickly and do not reward basic skills improvements or  progress toward a degree or certificate. As a result of these challenges,  experts said that local areas may not guide participants toward training  programs for middle-skilled jobs, which tend to be longer and more  expensive than other training programs and typically require a certain  basic skill level. However, DOL officials disagreed that WIA performance  measures encourage local areas to place participants into employment  quickly. Also, DOL officials cited customer choice as a reason why some  low-skilled participants do not receive training for middle-skilled jobs.  Officials said that, when participants select training, they consider not only  the guidance they receive from case managers but also their own  interests and how long they can afford to be out of the workforce.

Little is Known About the Use of Career Pathways to Prepare Workers for Certain Hard-to-Fill Jobs

To help participants in WIA and other programs improve their skills, gain  employment, and progress in a career, DOL has coordinated with the  Departments of Education (Education) and Health and Human Services  (HHS) to fund and provide guidance for career pathways approaches,  which link basic skills education, occupational training, and support  services. According to these agencies, these approaches aim to enable  individuals to secure industry relevant certification and obtain employment  within an occupational area and to advance to higher levels of future  education and employment in that area. In 2010, DOL and Education  launched the Career Pathways Initiative by providing 1-year grants to  nine states and two tribal entities to develop these approaches. Based on  the lessons learned from these grants, DOL has taken steps to help other  states and local areas implement these approaches. Specifically, DOL  has issued guidance on developing career pathways systems; provided  technical assistance tools, such as webinars; shared promising practices;  and maintained a Career Pathways Community of Practice website. In  addition, DOL, Education, and HHS—as members of the Career  Pathways Working Group—have collaborated on joint technical  assistance efforts. For example, in 2012, DOL issued a joint letter with  Education and HHS to encourage local areas’ use of career pathways  approaches to help prepare low-skilled participants for employment. The  interagency working group plans to issue a national catalog of career  pathways toolkits in the future. DOL has also funded grants that are not  specifically targeted at career pathways approaches but can be used for  this purpose. In 2012, DOL awarded 26 Workforce Innovation Fund  grants to support innovative approaches for design and delivery of  employment and training services; 17 of the 26 grantees are using these  grants to develop career pathways approaches, according to DOL.

DOL and workforce experts find career pathways approaches promising,  and efforts are underway to gather more information about their  implementation and effectiveness. According to DOL officials and experts  we interviewed, career pathways approaches are a promising strategy  that state and federal agencies should adopt to support lower-skilled  individuals. Efforts are underway to collect information about how many  states are using career pathways approaches. DOL conducted a  preliminary review of the extent to which states are using these  approaches, and found that all but seven states are participating in some  type of career pathways initiative at either the state or local level. To  supplement the information collected in this initial review, the Career  Pathways Working Group plans to issue a national Request for  Information (RFI) during program year 2013 to obtain more detailed  feedback from states and local areas on career pathways successes and  any obstacles to implementation. In addition, HHS has contracted with  Abt Associates Inc. to conduct a 10-year evaluation of nine innovative  career pathways programs across the country, known as the Innovative  Strategies for Increasing Self-Sufficiency project. This evaluation will  measure the effects of these programs on participants’ employment,  earnings, and other outcomes, and will also include a study of program  implementation and operations as well as a cost-benefit analysis.

However, little is known about the extent to which local areas are using  career pathways approaches—or how they are using these approaches— specifically to prepare participants for middle-skilled jobs that employers  have difficulty filling. According to the guidance issued by the Career  Pathways Working Group, one essential component of career pathways  approaches is a specific focus on local workforce needs, and DOL  officials said that these approaches are one way to prepare participants  for middle-skilled jobs that employers have difficulty filling. Nevertheless,  DOL and other agencies do not plan to collect and disseminate  information on whether and how local areas are using these approaches  to prepare participants for such jobs as part of the RFI or the evaluation of  career pathways programs. According to federal government internal  control standards, agencies should have information on whether their  programs are meeting their intended objectives. whether and how local areas are using career pathways approaches to  prepare participants for middle-skilled jobs that employers have difficulty  filling, DOL may not be well-positioned to help local areas use these  approaches to better meet employers’ needs.

GAO, Internal Control Standards: Internal Control Management and Evaluation Tool,  GAO-01-1008G (Washington, D.C.: August 2001). the extent to which these programs are positioned to help supply workers  for hard-to-fill jobs, our work suggests that the programs have difficulty  supplying workers for certain types of middle-skilled jobs due to the low  skill level of some program participants, among other reasons. While it  appears that these participants are receiving training, their lack of basic  skills may be an obstacle to obtaining training that would prepare them for  the middle-skilled jobs that employers are having difficulty filling. Further,  both DOL and workforce experts emphasized that this problem exists in a  larger context, and that helping participants improve their basic skills can  involve a considerable investment of time and resources.

Given that a variety of factors affect whether skilled jobs are filled, it may  not be realistic to expect the Adult and Dislocated Worker programs to  fully meet all employers’ needs, but these programs can play an important  role. DOL has made efforts to help improve participants’ skills through  career pathways approaches and plans to gather more information about  their implementation. Despite these efforts, our findings suggest that  there are some local areas in which employers’ needs for certain types of  middle-skilled workers are not being met. Without additional information— beyond what it already plans to collect—on whether and how local areas  are using career pathways approaches to prepare participants for the  types of middle-skilled jobs that employers are having difficulty filling,  DOL may not be well-positioned to help local areas use these approaches  to better meet employers’ needs.

To help local areas better meet employers’ needs for skilled workers, we  recommend that the Secretary of Labor:  collect information on the use of career pathways approaches by local  areas specifically to prepare workers for the types of middle-skilled  jobs that employers have difficulty filling; and  to the extent such approaches are being used, disseminate  information about them, such as implementation challenges,  strategies, and results.

We provided a draft of this report and the e-supplement containing our  detailed survey results to the Secretary of Labor for review and comment.  DOL provided a written response (see app. III). DOL agreed with our  recommendation and did not provide any comments on the e-supplement.

Specifically, DOL’s response noted that the agency is committed to  promoting effective labor market information resources and using career  pathways approaches to prepare workers for career advancement and to  help employers gain a skilled workforce. DOL agreed that there is value in  learning more about how local areas are using career pathways  approaches. To identify promising career pathways approaches used by  local areas, DOL plans to (1) leverage existing investments in the  Workforce Innovation Fund and other DOL initiatives; (2) continue to  engage with federal and non-federal partners through the work of the  interagency Career Pathways Working Group; and (3) widely disseminate  information learned from studying these approaches through DOL’s  career pathways Community of Practice, other communication vehicles,  and technical assistance activities, as appropriate.

We are sending copies of this report to the appropriate congressional  committees and the Secretary of Labor. In addition, the report is available  at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-7215 or sherrilla@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

Our review focused on: 1) how local workforce areas have identified  occupations that are in demand and how they have guided participants  toward training for them; and 2) what challenges local workforce areas  have faced in helping employers fill certain jobs.

To address both objectives, we reviewed relevant federal laws and  regulations, as well as the Department of Labor’s (DOL) guidance to  states and local workforce areas. We also conducted a web-based survey  of a nationally representative sample of 200 workforce investment boards  (WIB) and interviewed nine WIBs that were not part of our survey sample  (see WIB Survey and WIB Interviews below). In addition, we interviewed  DOL officials as well as representatives from the National Association of  Workforce Boards, the National Association of State Workforce Agencies,  and the W.E. Upjohn Institute for Employment Research. To address the  challenges local areas face in helping employers fill certain jobs, we also  interviewed representatives from the National Skills Coalition and the  Center for Law and Social Policy (CLASP). We did not conduct a skills  gap analysis as part of this study primarily because reliable data on the  conditions associated with a skills gap were not available at the local or  state levels (see Skills Gap Analysis below).

To address both objectives, we conducted a web-based survey of a  nationally representative sample of 200 WIBs. The questionnaire included  questions about which sources of labor market information local areas  used to identify demand occupations, the sources they found most useful,  how they guided participants toward training, and the challenges they  faced in guiding participants toward training in calendar year 2012. In  addition, we asked respondents whether employers in their areas have  had difficulty filling certain jobs, and if so, the challenges they have  experienced in helping employers fill those jobs.

We selected a stratified random probability sample from DOL’s list of all  578 WIBs nationwide as of November 2012, which included both local  and statewide WIBs. With this probability sample, each member of the  study population had a nonzero probability of being included, and that  probability could be computed for any member. We stratified the  population into 10 groups based on U.S. Census Bureau regions to  ensure geographic distribution. Each sample element was subsequently  weighted in the analysis to account statistically for all the members of the  population, including those who were not selected. In designing the  sample, we did not consider indicators of the size of the local areas  overseen by WIBs, such as population or amount of WIA funding received  because such data were not readily available. Our sample included 195  local WIBs and 5 statewide WIBs.

To minimize errors arising from differences in how questions might be  interpreted and to reduce variability in responses that should be  qualitatively the same, we conducted pretests with four local WIBs and  one statewide WIB over the telephone. To ensure that we obtained a  variety of perspectives on our survey, we selected WIBs with diversity on  the following criteria: 1) Employment and Training Administration (ETA)  region, 2) whether the WIB was located in an urban or rural area, and 3)  state and local unemployment rate. Based on feedback from these  pretests, we revised the questionnaire in order to improve the clarity of  the questions. An independent survey specialist within GAO also  reviewed a draft of the questionnaire prior to its administration. In  addition, we asked knowledgeable DOL officials to comment on the  questionnaire and incorporated their comments as appropriate.

After completing the pretests, we administered the survey. On March 7,  2013, we sent an e-mail announcement of the questionnaire to executive  directors and other knowledgeable representatives of the WIBs in our  sample, notifying them that our online questionnaire would be activated  within a week. On March 13, 2013, we sent a second e-mail message to  these WIB representatives in which we informed them that the  questionnaire was available online and provided them with unique  passwords and usernames. We also followed up by telephone and e-mail  with these WIB representatives as needed to clarify their survey  responses. We collected responses through April 15, 2013. We received  completed questionnaires from 148 WIBs, for a 74 percent unweighted  GAO-14-20SP response rate. Detailed survey results are available at: .

We used standard descriptive statistics to analyze responses to the  questionnaire. All estimates based on the survey results are subject to  sampling error. Because we followed a probability procedure based on  random selections, our sample is only one of a large number of samples  that we might have drawn. Since each sample could have provided  different estimates, we express our confidence in the precision of our  particular sample’s results as a 95 percent confidence interval. This is the  interval that would contain the actual population value for 95 percent of  the samples we could have drawn. We used the results of the survey to  create estimates about the population of all WIBs nationwide. All  percentage estimates from the survey have their sampling margins of  error calculated at the 95 percent level of confidence.

To minimize nonsampling errors, and to enhance data quality, we  employed recognized survey design practices in the development of the  questionnaire and in the collection, processing, and analysis of the survey  data. For instance, as previously mentioned, we pretested the  questionnaire with WIBs to minimize errors arising from differences in  how questions might be interpreted and to reduce variability in responses  that should be qualitatively the same. We further reviewed the survey to  ensure the ordering of survey sections was appropriate and that the  questions within each section were clearly stated and easy to  comprehend. To reduce nonresponse, another source of nonsampling  error, we followed up by telephone and e-mail with WIB representatives  who had not responded to the survey to encourage them to complete it. In  reviewing the survey data, we performed automated checks to identify  inappropriate answers. We further reviewed the data for missing or  ambiguous responses and followed up with WIB representatives when  necessary to clarify their responses. On the basis of our application of  recognized survey design practices and follow-up procedures, we  determined that the data were of sufficient quality for our purposes.

Concurrently with our survey, we interviewed nine WIBs that were not  part of our survey sample to gather in-depth information about selected  survey topics. To select WIBs for interviews, we selected five states with  diversity regarding the following criteria: 1) state unemployment rate, 2)  geography, and 3) whether DOL officials identified the state as having  promising practices in using labor market information to guide participants  toward training. In applying these criteria, we ensured that we selected  one state with a statewide WIB (see table 2).

We then randomly selected two WIBs in each of the four states with local  WIBs (California, Michigan, New Jersey, and Virginia). In each of these  states, we asked representatives of the state WIB to classify each local  WIB in their state as either primarily urban or primarily rural. We then  randomly selected one primarily urban and one primarily rural WIB in  each state to interview, excluding those that were part of our survey  sample. We interviewed a total of eight local WIBs and one statewide  WIB. Of the eight local WIBs, five were primarily urban and three were  primarily rural.

We did not conduct a skills gap analysis as part of this study primarily  because reliable data on the conditions associated with a skills gap were  not available at the local or state levels. According to officials from DOL’s  Bureau of Labor Statistics (BLS), the following conditions would be  associated with a skills gap in a particular occupation: 1) jobs remain  unfilled for a longer-than-normal time period, 2) wages are increasing,  and 3) unemployment is low. We explored the possibility of using existing  datasets to identify occupations that have rising wages and low  unemployment rates, and then asking the WIBs we surveyed whether  employers in their local areas had difficulty filling these jobs. However, we  concluded that reliable data on occupational unemployment rates are only  available on the national level. Because national data may not reflect  local labor market conditions, we did not incorporate such data into our  survey. Instead, we asked the WIBs we surveyed to list occupations that  employers in their area had difficulty filling and then coded their  responses to Standard Occupational Classification (SOC) codes. For  more information on the occupational coding, see appendix II.

Specifically, BLS’ Occupational Employment Statistics (OES) program  provides data on employment and wages by occupation, but officials told  us that local-level OES data on occupational wage growth may not be  reliable, and noted that data on occupational unemployment rates are not  available at the local level. In addition, we determined that state-level  data on occupational unemployment rates are not sufficiently reliable for  our purposes. Specifically, we were unable to use state-level data from  the Current Population Survey (CPS) to identify occupations with lower  than average unemployment rates because the standard error associated  with these estimates was over 20 percent in states with small  populations. While data from online job openings—such as that  published by The Conference Board—are used by some researchers to  estimate state-level unemployment by broad occupational categories,  these data are not available at the local level, and the reliability and  validity of the data is not known.

Appendix II: Occupations That Employers Had Difficulty Filling in Calendar Year 2012

Our web-based survey of 200 workforce investment boards (WIB)  included a question asking if employers in their local area had difficulty  filling jobs in certain occupations in calendar year 2012 (see appendix I  for more information on the survey’s methodology). If WIBs answered  yes, they were asked to list up to five occupations that employers had  difficulty filling in open-ended boxes and also to indicate if the WIB  considered each occupation to be high growth in its local area. A total of  110 WIBs listed one occupation that was difficult to fill, 95 WIBs listed 2  occupations, 70 WIBs listed 3 occupations, 47 WIBs listed 4 occupations,  and 32 WIBs listed 5 occupations. We coded these open-ended  responses to the 2010 Standard Occupational Classification (SOC)  codes. The 2010 SOC system is used by federal statistical agencies to  classify workers into occupational categories for the purpose of collecting,  calculating, or disseminating data.

In order to code the survey responses to the most appropriate SOC code,  we searched the SOC titles or definitions or the related Direct Match Title  File (DMTF) on keywords or phrases provided in the open-ended survey  responses. Survey responses were coded to the most detailed SOC code  allowable based on the search results. In many cases, there was a one- to-one match at the detailed SOC level for many detailed occupations,  including registered nurses, welders, and machinists. Survey responses  that had a one-to-one match at a broad, minor group, or major group  SOC level were coded at that higher level, including engineers and  driver/sales workers and truck drivers.

Some survey responses resulted in multiple matches at the detailed SOC  level. If all of the matches were among related occupations, the response  was coded at the SOC level that incorporated all of the title matches. For  example, a survey response of web designer and programmer matched  to several detailed occupations that could be rolled up into the minor  group of computer occupations.

Some survey responses matched to multiple detailed occupations that  could not be rolled up to a higher SOC level. For example, a survey  response of accounting matched to accountants and auditors which is a  business and financial occupation, and also to bookkeeping, accounting,  and auditing clerks which is an office and administrative support  occupation. Responses were coded to more than one SOC code if May  2012 Occupational Employment Survey data indicated that workers were  employed in all of the matched occupations in the metropolitan statistical  area that contained the WIB. The most codes that were assigned to one  survey response were two codes. Of the 354 survey responses that were  coded, only 17 responses were assigned two SOC codes resulting in a  total of 371 SOC codes assigned.

Survey respondents frequently cited manufacturing (15) or advanced  manufacturing (14), which are considered industries, not occupations,  and matched to multiple SOC codes in different occupational groups. We  created separate categories for these two responses in order to preserve  the specificity of these responses given the relatively large number of  survey responses where WIBs indicated these jobs were difficult to fill.  Similarly, we created a separate code for the 20 responses that just  stated health care without specifying an occupation, and also for the 7  responses that just stated nurse without specifying registered nurse or  licensed practical nurse. Other survey responses that were vague or  could not otherwise be matched to SOC occupations were coded as  unknown.

A second analyst reviewed the SOC code matches and codes assigned  by the first analyst to see if the assigned codes had face validity. In cases  where there was disagreement or additional information was needed, the  two analysts met to reconcile differences. A third analyst independently  verified the counts of the codes listed in table 3 below. The number of  coded occupations represents those most frequently cited by WIBs that  responded to the survey question and cannot be generalized beyond that  population.

Appendix III: Comments from the Department of Labor

Appendix IV: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Patrick DiBattista (Assistant  Director), Caitlin Croake, Hedieh Fusfield, Linda Siegel, and Paul Wright  made key contributions to this report. Also contributing to this report were  Carl Barden, Jessica Botsford, Ted Burik, David Chrisinger, David  Dornisch, Jill Lacey, Kathy Leslie, Mimi Nguyen, and Rhiannon Patterson.

Workforce Investment Act: DOL Should Do More to Improve the Quality  of Participant Data. GAO-14-4. (Washington, D.C.: December 2013).

Workforce Investment Act: Innovative Collaborations between Workforce  Boards and Employers Helped Meet Local Needs. GAO-12-97.  (Washington, D.C.: January 19, 2012).

Workforce Investment Act: Employers Found One-Stop Centers Useful in  Hiring Low-Skilled Workers; Performance Information Could Help Gauge  Employer Involvement. GAO-07-167. (Washington, D.C.: December 22,  2006).

Workforce Investment Act: Substantial Funds Are Used for Training, but  Little Is Known Nationally about Training Outcomes. GAO-05-650.  (Washington, D.C.: June 29, 2005).

Labor Market Information: Trends and Issues in Funding of State  Programs. GAO-03-336. (Washington, D.C.: December 20, 2002).

Question: Why have local areas had difficulty helping employers fill jobs?

Answer: Local areas had difficulty helping employers fill certain jobs for a variety of reasons, including the low skills of some participants, according to GAO estimates.

Question: At what educational level do employers have the greatest difficulty filling jobs?

Answer: Eighty percent of local areas reported that employers had difficulty filling certain jobs, some of which can be considered "middle-skilled" jobs, such as welders and machinists, because they require more than a high-school diploma but less than a 4-year college degree.

Question: How is DOL helping improve job-filling rates?

Answer: To help participants improve their skills, DOL and other agencies have encouraged the use of career pathways approaches that combine job training with basic skills education and support services. According to these agencies, such approaches aim to enable participants to secure industry relevant certification and obtain employment within an occupational area and advance to higher levels of future education and employment in the area.

Question: To what extent are local areas using career pathways approaches?

Answer: However, little is known about the extent to which local areas are using career pathways approaches--or how they are using these approaches--specifically to prepare participants for middle-skilled jobs that employers have had difficulty filling.

Question: Why is this information important?

Answer: Without information on whether and how local areas are using these approaches to prepare participants for such jobs, DOL may not be well-positioned to help local areas use these approaches to better meet employers' needs.

Challenges in Helping Fill Jobs Included Participants’ Lack of Qualifications and Basic Skills

Little is Known About the Use of Career Pathways to Prepare Workers for Certain Hard-to-Fill Jobs

Question: What is the purpose of DOL's Workforce Investment Act and Dislocated Worker programs?

Answer: DOL's Workforce Investment Act (WIA) Adult and Dislocated Worker programs are designed in part to help employers find the skilled workers they need. The programs provide participants with services including job training, which must be for occupations that are in demand.

Question: To what extent are these programs able to supply workers for difficult-to-fill jobs?

Answer: However, questions have been raised about the extent to which these programs are positioned to help supply workers for jobs that employers have difficulty filling.

Question: What did the Consolidated Appropriations Act of 2012 mandate regarding the Adult and Dislocated Worker programs?

Answer: The conference report accompanying the Consolidated Appropriations Act of 2012 mandated that GAO assess the Adult and Dislocated Worker programs.

Question: What does this report address?

Answer: This report addresses (1) how local workforce areas have identified occupations that are in demand and how they have guided participants toward training for them; and (2) what challenges local workforce areas have faced in helping employers fill certain jobs.

Question: How did GAO collect data for this report?

Answer: GAO conducted a web-based survey of a nationally representative sample of 200 local workforce investment boards (WIB), which oversee local workforce areas, and used the results to create estimates about the population of all WIBs nationwide. GAO also interviewed DOL officials and workforce organizations.

Appendix I: Objectives, Scope, and Methodology

Question: Why have local areas had difficulty helping employers fill jobs?

Answer: Local areas had difficulty helping employers fill certain jobs for a variety of reasons, including the low skills of some participants, according to GAO estimates.

Question: At what educational level do employers have the greatest difficulty filling jobs?

Answer: Eighty percent of local areas reported that employers had difficulty filling certain jobs, some of which can be considered "middle-skilled" jobs, such as welders and machinists, because they require more than a high-school diploma but less than a 4-year college degree.

Question: How is DOL helping improve job-filling rates?

Answer: To help participants improve their skills, DOL and other agencies have encouraged the use of career pathways approaches that combine job training with basic skills education and support services. According to these agencies, such approaches aim to enable participants to secure industry relevant certification and obtain employment within an occupational area and advance to higher levels of future education and employment in the area.

Question: To what extent are local areas using career pathways approaches?

Answer: However, little is known about the extent to which local areas are using career pathways approaches--or how they are using these approaches--specifically to prepare participants for middle-skilled jobs that employers have had difficulty filling.

Question: Why is this information important?

Answer: Without information on whether and how local areas are using these approaches to prepare participants for such jobs, DOL may not be well-positioned to help local areas use these approaches to better meet employers' needs.

Question: What is the purpose of DOL's Workforce Investment Act and Dislocated Worker programs?

Answer: DOL's Workforce Investment Act (WIA) Adult and Dislocated Worker programs are designed in part to help employers find the skilled workers they need. The programs provide participants with services including job training, which must be for occupations that are in demand.

Question: To what extent are these programs able to supply workers for difficult-to-fill jobs?

Answer: However, questions have been raised about the extent to which these programs are positioned to help supply workers for jobs that employers have difficulty filling.

Question: What did the Consolidated Appropriations Act of 2012 mandate regarding the Adult and Dislocated Worker programs?

Answer: The conference report accompanying the Consolidated Appropriations Act of 2012 mandated that GAO assess the Adult and Dislocated Worker programs.

Question: What does this report address?

Answer: This report addresses (1) how local workforce areas have identified occupations that are in demand and how they have guided participants toward training for them; and (2) what challenges local workforce areas have faced in helping employers fill certain jobs.

Question: How did GAO collect data for this report?

Answer: GAO conducted a web-based survey of a nationally representative sample of 200 local workforce investment boards (WIB), which oversee local workforce areas, and used the results to create estimates about the population of all WIBs nationwide. GAO also interviewed DOL officials and workforce organizations.