The Trump Effect and Business: HSAs
The popularity and adoption of HSAs are on the rise, and are becoming part of a long-term planning and savings strategy. Mike Savage, Paychex retirement compliance manager, and small business influencer Gene Marks break down what HSAs are and how employers can use them as an attractive employee benefit.
Gene Marks: Hi, everybody. My name is Gene Marks. I write every day for the Washington Post, and I write online and a bunch of other places every week. And I'm here with Mike Savage. Mike is a manager of retirement compliance here at Paychex.
You deal with all things related to retirement and benefits and such. And one big issue that I think has come under your umbrella is health savings accounts. Health savings accounts have just exploded in popularity over the past few years. A lot of employers are getting them. They're coupling them with those high-deductible bronze plans and such. Tell us a little bit about what HSAs do, why they're important, the environment of health savings accounts.
Mike Savage: Sure. So like you said over the past three to four years, you've seen just exponential growth in health savings accounts. And I think what people are starting to realize is that HSAs can be more part of a long-term retirement planning strategy versus just being more of the short game, as far as managing health care costs.
GM: Yeah, I heard they are like the 401(k)s for health care costs. Right?
MS: Yeah. And we've talked about this before, but they have triple tax advantages. So the contributions into a health savings account are tax-free, they grow tax-free on the interest, and then for qualified medical expenses up to the age of 65 they're tax-free. So huge benefits there. And I think what both health care managers or HR managers are recognizing, and then also some financial advisors are recognizing, is that there are significant tax benefits. Because when you look into the future, into retirement, one of the biggest expenses anybody has is health care costs. And if they can use this HSA vehicle right now to help shell away money to pay for health care costs in retirement, that's a huge win.
And it's interesting, there's some misconceptions about HSAs and who they benefit. A lot of people say that they're for the young and healthy or the wealthy. And that's not necessarily true when you really look at HSAs as more of a long-term planning, retirement planning, or tax planning strategy. So we see huge benefits in coupling HSAs with a 401(k). And the challenge right now is that they are linked to high-deductible health care plans.
GM: So in other words, you have to, to put an HSA into place in your company, you have to have a high-deductible plan also. You can't just have it standalone. Is that correct?
MS: Yeah. We're hoping there's going to be some changes to that, because with repeal and replace that the GOP has proposed, there's significant changes to both the availability of HSAs and--
GM: They're talking about individual plans, right, as well?
MS: Yeah, so and there's bipartisan support to peel away HSAs from high-deductible health care plans and increasing the contribution limits. So that would be a benefit to everybody in our society. The trick now is then educating folks and bringing awareness to how important they are and what an important vehicle they can be for preparing for retirement.
GM: So tell me all these great things about HSAs and they are very popular and all that. Any downsides?
MS: I mean we don't see a ton of downsides. As I just said the biggest downside right now is just availability to them. A lot of people don't have access to them. There's still a lot of employers that don't provide or offer a high-deductible health care plan, which you don't get access to the HSA that way. So not a tremendous amount of downside to HSAs at this point. Everybody is going to have health care costs throughout their life and using those assets to pay down those medical expenses is a pretty important strategy.
GM: We've talked about you just mentioned as a wrap-up that there's bipartisan support, and I also see the same thing when I'm in Washington as well. What do you think – where do you see the future of HSAs being, regardless of what happens with all the health care debate, you think HSAs are there for the long term?
MS: I definitely think they're there for the long term. And I think eventually we'll see them be a standalone benefit, not tied to a high-deductible health care plan. And then it boils down to service providers and investment advisors making HSAs available and people aware of what the benefits are from a tax planning strategy.
GM: Sounds great. So again, you're running a business, you're an HR manager, you're in charge of a larger company, but you've got a high-deductible plan, you've got to have an HSA along with it. It almost seems like automatic, you've got to do it. And even if you don't have a high-deductible plan, keep your eyes open, because there might be some options in the future for putting in an HSA standalone. So we'll keep our eyes on that. Mike, thanks very much. Appreciate the time.
MS: You're welcome. It's good to see you.