Moving From Health Care Spending to Health Care Saving

The 2018 PLANSPONSOR HSA Conference kicked off in New York City with discussions on the mechanics of health savings accounts (HSAs) and their potential as retirement savings vehicles.

Inci Kaya, a health care analyst for Aite Group, discussed levels of HSA adoption among Millennial, Gen X and Baby Boomer participants during the session “Landscape and Outlook for HSAs,” and described how developments will lead to future growth. While the Millennial generation applies medium to low levels of HSA adoption and generally has lower account balances and lessened levels of awareness/education, Kaya said if plan sponsors engage with the younger age group, it can only lead to long-term progression.

Speakers credited plan sponsors as the drivers in raising savings among participants. For example, when employers begin to contribute to a participants’ savings, this can drive up both HSA and 401(k) saving, said Kevin Robertson, senior vice president and chief revenue officer at HSA Bank, during his session, “Maximize Your HSA Program for Both Health and Wealth.”

“It’s really about behavioral change, helping people become better health care consumers while increasing engagement and health wellbeing,” he said. “There’s something psychologically that happens to participants when they see their employer is contributing.”

This type of support can heighten participant’s 401(k) and overall savings too, not just in the HSA. Eighty-eight percent of employees participating in an HSA will maintain or increase their 401(k) contributions post-HSA enrollment, Robertson explained. Additionally, financial backing from employers sets the stage for another hurdle common among participants: investing. Frequently viewed as a trickier path by employees, Robertson said plan sponsors can diminish this attitude through sustainable navigation.  

“Most participants have not been in a HSA structure long enough to get to investing,” he said. “Have a strategy that you’re trying to employ. Ask what are you trying to achieve? Don’t just play a cursory role in it, have a plan for it.”

Three savings categories for successful HSA utilization, he mentions, are on-demand funds, short-term savings, and long-term savings. In addition to these strategies, participant communication initiates conversations from workers, and diminishes the vague fear with investments. In the session, “The Relationship Between Retirement Plans and HSAs,” Holly Doering-Powell, senior vice president/director of HCS Sales & Client Experience at UMB Bank Healthcare Services, cited communication as the reason behind successful employer-sponsored programs.

This education and communication from plan sponsors isn’t just to ensure participants utilize investments—employers should also ask themselves if their workers even fully grasp HSAs. According to a Bank of America survey, seven in 10 individuals do not understand the feature, and while 76% in the survey said they do, when drilled down, only 12% of the 76% could articulate what an HSA is, said Rob Banuelos, senior vice president and national benefit solution manager at Bank of America Merrill Lynch. “There’s a huge gap there, and we still have a long way to go,” he told conference attendees.

Back to the subject of HSA investments, Banuelos emphasized that HSAs are individually-owned accounts, and warned what a high number of funds can do to an account. The more funds, the more risk plan sponsors run in overwhelming participants, he said. “Less is more, so if you offer various funds, does that make it easier for your employees? Probably not,” he said.

Employers can also educate participants on the importance of saving in both HSAs and retirement plans, and how to allocate contributions to each. Banuelos recommended contributing first to HSAs, as participants are likely to hit its maximum annual limit far quicker than the $18,500 401(k) yearly threshold.

In his “Health and Wealth in Retirement” session, Jack Towarnicky, executive director of the Plan Sponsor Council of America (PSCA) echoed similar sentiments, calculating the difference in value between HSAs and 401(k)s, considering HSAs triple-tax advantage, and crediting HSAs as an “opportunity to improve total rewards while reducing cost.” During his presentation, Towarnicky calculated that participants will find an average of 60% in difference of value, given certain balances at age 65, annual payouts to age 90, annual after-tax value to age 90, and federal, state, FICA and FICA-med rates.

But, rather than max out the HSA first, he advocated for saving enough to get the employer match in both, if the HSA offers an employer match and if the participant can afford it. Otherwise, Towarnicky said the common sense approach is to contribute an initial amount to the HSA and contribute up to the full match in the 401(k). Participants can then alternate contributions between the two vehicles.