HSAs a Growing Retirement Savings Opportunity

Workers are still mainly unaware of the long-term tax-free growth health savings accounts (HSAs) can generate.

A new study from Avidia Bank predicts an impending “wave of investment growth” in health savings accounts (HSAs), despite relatively weak uptake among workplace investors and retirement savers so far.

“Over the past six months, every new group or broker that I encounter has inquired if Avidia offers investment options for HSA programs,” observes Lynda Westbrook, vice president of Avidia Bank’s Healthcare Solutions business. “They tell me that the group’s president, CEO or HR director wants it and that their employees are asking as well.”

The study, titled “The Coming HSA Investment Wave,” finds that while the ability to invest funds inside an HSA for long-term tax-free growth has been in place for a decade or longer, many HSA owners do not even know it exists and use their accounts only for current or near-term medical care spending. This matches other research findings that HSAs can effectively complement more traditional retirement planning accounts, but only with the proper education and guidance.

Todd Berkley, president of HSA Consulting Services and the study’s author, projects HSA investments are likely to quadruple every three years until at least 2020. This implies growth from $3 billion invested today to $12 billion in 2017 and $40 billion in 2020. The study finds growing HSA balances are in large part being driven by renewed interest among investment advisers and employee benefit services providers beyond health insurance brokers.

Nearly 20 million Americans own an HSA, Avidia finds, but very few HSA owners currently invest regularly in the account and therefore miss the most powerful feature of their accounts.

NEXT: Advisers get active on HSAs 

“Health insurance brokers are not always equipped with the knowledge to offer a full and comprehensive overview of the HSA or in some cases, do not even discuss it at all,” the study observes. “Until now, most people have been introduced to the HSA concept by their employer’s health plan, HR representative or broker.”

Initially, many employers chose the default option of facilitating the opening of HSA accounts with the HSA trustee linked to the health plan offering—or they allowed their employees decide if they needed an account at all. Today, the factors are aligning for greater advocacy for HSAs among the other service provider professionals in the employee benefits space, especially retirement plan advisers.

“The factors are all in place for investments within HSAs to go from a hidden gem to a primary driver of investment growth as financial advisers start taking an active role in promotion of HSAs,” Berkley explains. He says the study “concludes that HSA investment growth is bound to accelerate due to account demographics alone and that focused education could throw gas on the fire.”

“HSAs offer investment professionals the opportunity to help clients with trusted expertise in the increasingly critical arena of healthcare planning and spending,” Westbrook concludes. “By studying the concept and creating partnerships to offer a top-notch program to your clients, you can set yourself apart in your firm and show others how to create a valuable extension to the retirement savings plans of your firm.”

The study is available at AvidiaHealth.com or AskMrHSA.com