Understanding HSAs: Communication is Key. In an effort to help mitigate rising healthcare costs and give their employees more flexibility and choice in their benefits plans, increasing numbers of employers are offering high deductible health plans (HDHPs) tied a to a health savings account (HSA). In fact, 73% of employers offer an HDHP with an HSA benefit, according to Willis Towers Watson’s 22nd Annual Best Practices in Health Care Employer Survey. That number is projected to reach 83% by 2019, according to the survey.
Simply put, a health savings account offers employees the opportunity to set aside pre-tax dollars and invest in current and future medical costs. Despite their popularity, however, the majority of Americans are unaware of the benefits of using an HSA, new research from Fidelity Investments found. The biggest misperception? Only three in 10 individuals Fidelity surveyed in its “Making the Most of Your HSA” study were aware that HSAs do not have a “use it or lose it” provision like flexible spending accounts (FSAs). As a result, people are hesitant to enroll in an HSA because they’re worried they might lose out on their savings if they don’t use them within a certain timeframe.
Actually, one of the many benefits of HSAs is the money rolls over each year. In addition, an individual can invest their savings and let the earnings grow right on through retirement – there are no required distributions. HSAs are also portable; when an employee switches jobs, they can take the account with them.
And perhaps the best benefit of all: HSAs offer a “triple tax advantage”: Pre-tax contributions go in, the savings grow tax-free, and the money can be withdrawn tax-free to pay for qualified medical expenses.
These benefits are among the reasons why HSAs are often touted as a vehicle to help workers save for retirement in addition to employer-sponsored retirement plans. However, in its study, Fidelity found that 53% of employees didn’t understand how they would use an HSA to save for retirement. Many didn’t realize that they could invest their HSA contributions.
Clearly, better communication is needed to help employees get a handle on and utilize HSAs to their fullest potential. Many employees simply don’t “get” the advantages, and so they steer clear of HSAs. However, they can actually help employees save for the future in multiple ways – whether they’re paying for a surgery two years from now, or to help offset the hefty cost of healthcare and other expenses in retirement.
So what can plan sponsors do to help foster better understanding and uptake of HSAs?
o For starters, communicate the benefits early and often, using multiple channels (short videos can be particularly effective at explaining complex benefits like HSAs and getting employees excited about them).
o Consider funding HSAs with employer money to entice employees to sign up for HDHPs and save some of their own money in their HSA.
o Provide education and tools (i.e., calculators and financial wellness seminars) to help employees understand the tax advantages of saving in an HSA, as well as how they can use the money to offset current and future health costs, and how they might be able to utilize their HSA in tandem with other retirement savings.
Good communication is the key to fostering better understanding. If your organization offers an HSA, you should be clearly communicating the benefits, and helping employees understand how they can use these accounts to their greatest advantage. HSAs have numerous perks, and knowing how to tap them will not only help employees pay for eligible medical costs today but also provide an opportunity for them to save more and be better prepared for retirement, too.
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