Health savings accounts (HSAs)
really got their start with the passage of the Medicare Modernization
Act in 2003, says John Park, chief strategy officer at full-service
consumer-driven health plan provider Alegeus, who is based in Walthan,
HSAs are paired with a high-deductible health plan
(HDHP). “The idea was to drive some financial responsibility for
individuals and to allow consumers to have a savings account to offset
out-of-pocket costs,” Park notes. He adds that HSAs have benefits unique
to any other kind of tax-deferred accounts. They offer triple tax benefits—contributions
reduce taxable income; earnings on the accounts build up tax-free; and
distributions from the accounts, for qualified expenses, are not subject
Park attributes the rise in adoption of HDHPs with
HSAs to the employers’ cost of health care. Employers can lower or
maintain premiums by creating higher deductibles and increase premium
cost sharing to employees. It promotes more financial responsibility but
also creates the need to help consumers make better decisions.
move to 401(k)s was similar—it put more financial responsibility on
retirement plan participants and created the need to help them make
better financial decisions.
Park says there are a lot of
parallels in the adoption of HSAs and 401(k)s. Since introduction in
2003, HSAs hold more than 20% of market share. Similarly, it took some
time for 401(k) plans to be adopted—although introduced as part of the
Employee Retirement Income Security Act (ERISA) in 1974, it took more
than 10 years for 401(k)s to gain the same percentage of market share
that HSAs have now.
In addition, 401(k)s were met with reluctance
at first. Similarly, the retirement industry first saw HSAs as
competition for savings dollars, according to Park, but as health care
became a bigger part of the conversation about expenses in retirement,
HSAs are now being thought of as a complementary savings vehicle.
401(k)s were increasingly adopted, more education was required for
participants to understand them and to encourage participants to enroll.
Similarly, employees generally don’t understand the difference between
an HSA and other health care savings vehicles such as flexible spending
accounts (FSAs) or health reimbursement arrangements (HRAs), nor do they
recognize the long-term savings value proposition of HSAs.
when 401(k)s were first adopted, many had no more than three investment
vehicles offered to employees. Gene Lanzoni, assistant vice president,
Group & Worksite Marketing – Thought Leadership at Guardian Life in
New York City, notes there is still a very low use of investments
in HSAs, but as usage grows it will be a struggle to get employees
engaged and paying attention to asset allocation just as it has been
with 401(k)s. NEXT: Using retirement plan practices to encourage HSA use