HSAs empower participants to make most of health care dollars, but education is key to getting them onboard
Health savings accounts (HSAs) are on the rise, and the natural assumption could be that they are a slam-dunk option during enrollment periods.
The reality is a bit more complicated, however. It comes down to education, education, education.
HSAs have seen a steep increase in adoption in recent years, which means advisors must as act quickly get participants up to speed on the full advantages of these tax-friendly accounts.
According to one researcher, HSA assets experienced a 20-plus percent increase from 2017 to 2018 and exceeded $50 billion, with the total number of HSAs growing to 23.4 million at the end of June 2018, up 11.2% from the prior year.
According to a different report, though an impressive 82 percent of participants realize health care costs will be a significant issue in retirement, only one in four ranks putting money into an HSA as a top priority.
How can advisors address this gap, especially since 69 percent of those who didn’t enroll in an HSA say it’s because they didn’t see the benefit or didn’t understand them?
Address the benefits in clear, simple terms
Mel Perez, Paychex’s Product Manager for Insurance Services, says advisor to participant education is vital and most importantly, the simpler the better.
“There’s a lack of understanding of HSAs for a number of reasons,” says Perez. “They have not been easy to use in the past and were often presented in a confused, clunky and manual process.” He also notes that some participants thought HSAs were a different version of a Flexible Spending Account (FSA).
Perez has seen a spotlight on HSAs, especially with the double-digit rise in health care premiums and employers looking for better value in plans by opting for higher deductible/lower premium options for employees.
“HSAs have a ‘triple tax advantage’ because they allow participants to contribute pre-tax dollars, enjoy tax-free growth on invested funds, and most importantly, they can spend it tax-free on qualified medical expenses. Additionally, it doesn’t matter when those expenses were incurred as long as the participant was eligible to contribute to the HSA.”
Currently, 2018 HSA account contributions are capped at $3,450 for an individual and $6,900 per family. In 2019, the limits will increase to $3,500 for an individual and $7,000 per family.
It’s no surprise that annual HSA contributions increase steadily with age. For those under 25, average annual individual contributions in 2016 were $571, while those between 55 and 64 had the highest average that year at $2,676.
HSAs provide an additional benefit: HSA assets are owned by the participant. As such, unlike FSAs and HRAs, HSA assets may be rolled over from year to year.
Supplemental tools assist advisors
With supportive data and tax breaks on their side, advisors have a strong starting point to demonstrate the advantages and upsides of HSAs.
They can supplement this even more by using tools like a benefits tax calculator, something that Paychex readily uses when reviewing benefit plan designs with clients.
“Our calculator is well-designed to help advisors illustrate how much a participant should put into an HSA so that it grows to offset future medical costs. This helps the advisor turn the discussion into something very tangible for the participant,” adds Perez.
Offering a bundled HSA-401(k) solution is also advantageous, says Perez, because it helps put more control in participants’ hands by allowing them to enroll and change contributions either via mobile or desktop applications. These features are unique to Paychex thanks to their recently launched bundled HSA-401(k) solution.
Once participants understand that there is a clear path to savings, they are much more likely to engage. Advisors need a holistic view of what employers offer employees, then they can assist them in choosing the correct balance between their 401(k) contributions and their HSA elections if they have a high deductible health plan.
Employers are critical to participant outreach as well because advisors often face a significant hurdle in gaining access to employees in order to educate on lesser-known benefits, such as HSAs.
Perez sees employers as crucial in helping facilitate -- and support -- the discussion around HSAs’ benefits, tax savings and its importance as a concurrent benefit alongside retirement savings plans.
“We’ve seen employers really step up and offer a contribution to employee HSAs with a prerequisite, such as participating in an annual health screening,” an incentive that produces enrollment results, according to Perez.
Any size business that offers a qualified high-deductible health plan can offer an HSA, including sole proprietorships, and once implemented, the plans reduce employee taxable income and employer payroll taxes – making it a win-win solution.
Since HSAs entered the market in 2004, advisors have had a steep learning curve when it comes to education. However, Perez says they have come a long way.
“There is a lot of buzz in the marketplace around HSAs and that’s just only going to increase.”