Health Savings Accounts: An underutilized tool for long-term financial wellness

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Among the many effects of COVID-19, the pandemic has again underscored the tensions that can arise when workers, especially younger ones, have to choose their occupational health care plan: How to ensure affordable health insurance that also provides adequate protection against unforeseen, potentially serious ones Consequences offers health costs out of pocket?

For many employees, the answer may lie in an often overlooked benefit built into high deductible health plans (HDHPs): the health savings account (HSA). In fact, HSAs offer compelling advantages for employers and employees alike when it comes to affordable healthcare, with the notable added value that an HSA can even help increase financial security in retirement.

At a time when high quality health and retirement benefits are more important than ever in awarding employers of choice, sponsors should review how they position an HSA offering to ensure that employees correctly use the HSA as a very attractive tool for coverage health costs – but also as a useful tool for building general financial well-being well into retirement.

Some strong selling points

Let’s start with the basics – and the HSA’s strongest sales arguments for employees:

An HSA is only available through a Qualifying High Deductible Health Insurance Plan (HDHP) and provides coverage for Qualifying Medical Expenses (QMEs) regardless of the income of the account holder. Contributions to the HSA can be made by anyone on behalf of an eligible person – including the eligible employee, employer, or even relative. If contributions are made through a Section 125 “cafeteria” plan, contributions are pre-tax, including pre-FICA; income on HSA balance grows tax-free, and if the HSA balance is withdrawn to cover IRS-qualified medical expenses, the withdrawals are also tax-free.

HSAs are very different from flexible spending accounts (FSAs)1: The unused HSA credit can be carried over from year to year so that employees can increase their credit over time. [Note: The Consolidated Appropriations Act (CAA) of 2021 is an optional provision whereby employers can amend their Section 125 cafeteria plan to allow health FSA participants to rollover unused amounts from 2021 to 2022.]

To increase this longer-term growth potential, most HSA administrators allow HSA members to allocate contributions to mutual funds or a brokerage account once their balance reaches a certain threshold (e.g., $ 1,000).

Even more: HSAs belong to the individual and are transferable from employer to employer for the employee. And in the event of the death of the HSA member, the balance must be paid to a beneficiary.

Allocation of premium savings to cover costs

For both employees and employers, the cost benefits of an HSA are an impressive feature. An HSA member can take what they save on their HDHP premium payment from each paycheck (compared to an initial dollar coverage plan) and assign those dollars to their HSA to strengthen their ability to pay medical expenses out of pocket at any time.

Employers also realize cost savings rooted in lower FICA taxes and HDHP premiums. And since HDHP participants are responsible for the higher deductibles on their plan, they may be more inclined to “buy” for lower-cost healthcare solutions, which can also lower the employer’s overall health insurance costs.

For the employer, these savings can release performance money that can be diverted to an employee’s HSA as a further incentive for employee participation.

Help with the costs of retirement provision

Younger employees take advantage of HSA-qualified plans because of the more affordable premiums and the peace of mind of reallocating their savings to otherwise uncovered medical expenses.

But the HSA member’s ability to transfer unspent balance from year to year to save over time to cover health expenses out of pocket in retirement is one of the most significant yet underutilized HSA funds Services.

When an HSA member reaches retirement age, typically 65, and if they don’t need their HSA for health care expenses, they can use the funds for expenses other than health care. Especially if you have had a good system for saving your health vouchers since the introduction of your HSA, you can withdraw tax-free from the HSA at 65, provided the amount of the withdrawal corresponds to the amount of your health vouchers that you have saved over time.

For many people, however, rising healthcare costs, especially in retirement, are Exactly the use for which they should reserve these funds. In fact, offering retirees extra help with health expenses is no small consideration given that so many people still struggle to build sufficient savings to meet their basic needs and living expenses in retirement.

There is clearly a need. Corresponding a study, nearly half (45%) of adults 50 to 64 years old have little confidence that they can afford health insurance when they retire. And the likely cost is really daunting: In a recent studyThe Employee Benefit Research Institute (EBRI) estimated that a 65-year-old man would need $ 73,100 in savings and a 65-year-old woman would need $ 95,000 to cover premiums and average prescription drug expenses in retirement. simply to ensure a 50/50 chance of having enough. For the same 50/50 security, a couple would need an average spending on prescription drugs Savings of $ 168,000. And the likely cost of even greater security is dramatically higher. An HSA balance sheet based on a person’s employment can help cover these expenses.

Strengthening the long-term attractiveness of the HSA

No question about it – HSAs have the potential to do good to an HSA member throughout their professional years and well into retirement. How can you help employees take full advantage of the benefits?

First consider how – and literally where – the HSA is positioned in your range of services. Many employers bury HSA benefit information deep within their overall health insurance benefit. If this is the case with your health insurance plan, give the HSA more charisma and visibility in your benefits information and communications. Encourage your employees to study the HSA intensively and make sure that the accompanying explanatory information is robust enough to answer their initial questions and arouse their interest in further information. Another best practice is to educate employees year-round about the benefits of their HSA. Many employers only offer HSA training and information at the time of service selection. In order to best engage employees, employers with their HSA administrator or retirement plan provider can offer year-round HSA training to help employees build their HSA knowledge over time.

Then you should “turn” HSA’s services over the long term with a focus on retirement benefits. Make the direct benefit of the HSA clear: a triple tax-privileged way to cover today’s medical costs out of your own pocket. But do not fail to position the HSA as a triple tax-privileged “savings” instrument that can significantly expand the benefits of retirement provision. Enable employees to save as much of their HSA credit as possible throughout their careers to cover their medical expenses in retirement, rather than spending all of their HSA credit each year. Since many employers are no longer able to fund traditional retirement medical services, this point should be well received by workers.

HSA-qualified health insurance with a high deductible is gaining in importance, and the more employees are familiar with the service and have gained experience with the service, the more they will look for an HSA as a standard offer when choosing an employer or changing jobs. Properly positioned, an HSA can be a valuable lever for hiring, retention, and retirement, and also enhancing the competitive appeal of your overall health and financial wellness offering – not to mention employee concern over the top think about a hedge a “surprise” of health care costs.

Kendra Smith is part of the TIAA Health Solutions team and is responsible for sales, sales and development of the TIAA HSA. She is a seasoned financial services professional with experience in retirement planning and HSA design to improve employee results. Kendra’s passion is to educate plan sponsors and their employees about HSA benefits to cover health care costs up to and including retirement.

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