A Health/Wealth 'Plan'

Alison Cooke Mintzer (photo by Chris Ramirez)

A few years ago, I needed a surgery to address a medical issue that had been on my “watch list,” so to speak. Routine labs showed a change in a condition that warranted attention, and surgery was the recommended course of treatment.

It happened to be the same year I’d given birth to my third child and therefore had already maxed out my annual health insurance deductible. The new labs came in just a few weeks before the end of our plan year, and I found myself making appointments and scheduling the procedure immediately, to get that and various affiliated appointments and expenses completed within the necessary time frame.

The night before the surgery, I found myself questioning whether I had make the right choice—though I knew this treatment was the recommended option. I hadn’t given myself much time to think about it because of the potential cost of an additional couple thousand dollars. While this medical decision was the right one at the time, the timing of it was strictly based on our medical insurance year and the financial considerations.

I was reflecting on this decisionmaking—or perhaps lack thereof—in a discussion the other day with a friend who was shopping for an orthodontist for her daughters. She realized that by picking one a few neighborhoods away, she would save over $1,000 on the first part of the treatment course and multiple thousands over the next few years. The cost savings was well worth the extra travel time, she believed.

Medical decisions are rarely, if ever, made in a vacuum, and they loom large when one thinks about retirement planning and saving. After all, health and wealth are clearly connected, and, over the years, with the rising cost of insurance, health programs at companies have required major discussions between the finance and human resources (HR) groups. It’s partly why, over the past decade and a half, health savings accounts (HSAs) have taken the country by storm. Their growth—in number, assets and usage—has been incredible, and rightly so.

After all, HSAs are not just an HR offering or just part of a health insurance conversation—they’re so much more. They truly are part of an overall financial picture. The tax treatment—no taxes when that income is deferred, growing tax-free, and withdrawn tax-free for qualified medical expenses—is unlike any other savings account.

The ability to turn them into income after age 65 for even nonmedical expenses makes them of significant value for retirement income planning. Consider this: If the estimated amount needed by an average couple to cover medical costs during retirement is $265,000, according to data last year from the Employee Benefits Research Institute (EBRI), a couple could pay that using a tax-free $265,000 withdrawal from their HSA—assuming all expenses are qualified medical expenses—or a $344,500 gross withdrawal from their 401(k) plan, assuming a 30% overall tax rate.

If that same couple has expenses that are not qualified medical expenses, they would take the same amount out of either account. You can see why, at our recent PLANSPONSOR National Conference (PSNC), some plan sponsors spoke to me, wondering whether participants should move their savings to an HSA over their 401(k) after maxing out the employer match. I’m sure many of you are getting similar questions.

That conversation, to me, underlines one of the greatest challenges I see with these accounts—how to explain all of the above to participants. As employees have more workplace options for saving—traditional 401(k), Roth 401(k), HSAs, etc.—the discussion for how each individual can best allocate his money is imperative but also complex. For retirement plan advisers, it becomes increasingly important to understand the HSA option if your clients are including it as part of a benefits package.

HSAs’ importance has been apparent to PLANADVISER even just in seeing the traffic our stories on the accounts generates now compared with only a few years ago.

With an eye to the role these accounts can play in the retirement plan conversation, this year, ahead of PSNC, we offered both plan sponsor and adviser attendees the opportunity to join a half-day event called “HSA Essentials,” and the attendance was impressive. In October, in New York City, we’ll host a day-long event solely about the accounts; we already have great interest and are working with speakers who are experts on HSAs, to ensure the content will be valuable. That being said, I’d love to hear from you about the role played by HSAs in your practice and how you are, or are not, incorporating them. Please reach out.