Is the HSA a Health or a Retirement Savings Benefit?

Health savings accounts are growing in use and popularity as an employee benefit. With advantages both in health care spending and long-term retirement savings, employers can present the benefit in multiple ways.

Panelists at PLANADVISER/PLANSPONSOR 2023 HSA Conference said it can be used as both a health care and a savings benefit, but that will often depend on an employee’s wealth situation.

“Is it a health care or retirement savings benefit? My response to that is that it’s a ‘Yes, and.’ It’s not an ‘Either, or’—this is a product that spans both [benefit areas],” said Karen Coomber, vice president of intermediary business development at Fidelity Health Solutions.

Coomber added that Fidelity publishes an annual report on what an average couple retiring today should expect to spend on health care costs during retirement, with the most recent number hitting $315,000. “There’s certainly a need that we think HSAs can help address, both now and later, and there’s a real opportunity to position them as part of people’s financial picture,” she said.

Danovan Clacken, director of health and benefit account distribution, east at Bank of America, told the conference that how an HSA is used will largely depend an employee’s financial situation.

“There are going to be some employees that have to use that money today and will immediately look at it as a health care benefit,” Clacken said. “There are some individuals who will position it more as a longer-term retirement vehicle where they don’t necessarily need to spend that money today, and it can be a kind of 401(k) for health care.” 

Hurdles to Uptake

HSAs have been around since 2004, but despite that 20-year existence, many employees still do not fully understand them or their value, according to the panel.

According to employers, many of their employees “aren’t really taking advantage of the account[s] the way they were written or intended,” Coomber of Fidelity said, noting a Fidelity survey that showed while 80% of employers surveyed were offering an HSA, only 40% of that same employee pool reported using the HSA. “I do think sometimes they are getting lost in the shuffle of benefits.”

On the plus side, Coomber said 72% of Millennials say they like to see an HSA being offered with a new job. As this younger cohort is more aware of HSAs, that presents an opportunity for employers “to highlight their commitment to making health care more affordable and helping people in all income brackets put aside some money and help it to grow.”

Among employers not offering an HSA, some avoid offering it because they think it is only for highly compensated employees, according to Jon Fortune, director ofworkplace product and solutions at Transamerica. Fortune said it is important to educate employers, since 78% of HSA accounts are held by people with less than $100,000 in annual income.

“It’s so important for them making those incremental gains toward financial independence, toward covering the unexpected, and they can do that through their HSAs,” he said.

Another factor limiting employers’ communication opportunities can be busyness, panelists said, given other priorities such as recruiting, retention and enrollment season. One way to get around that is for benefit providers to discuss the HSA “off-cycle,” or mid-year, so it ’i not in conjunction with the busy annual enrollment period, Fortune suggested.

The Right Fit

 From an employer perspective, a key to HSA growth is to find the right provider that can meet specific needs and consider the employee pool, according to the panelists.

“Employers should be looking for a partner, not a vendor,” Clacken of Bank of America said. “We don’t want to look at this as a transactional experience.” Clacken said employees should be asking their HSA provider: “‘How are you going to help my employees pay for what is the second-highest cost in retirement? How are you going to help communicate this to my employees?’”

Plans can be personalized to offer different types of HSAs or to deliver the best communication and education for their specific employee pool, Clacken said. In that way, the provider can be as much of a consultant as a vendor.

Greg Puig, vice president of benefit consulting services at Sentinel Group, told the group that he focuses on five areas when helping clients in choosing an HSA partner. Those include: 1) the ability the HSA provider has from a spending perspective, such as offering a debit card; 2) the savings aspects in terms of the investment lineup; 3) what is their application or tech stack for users?; 4) are they integrated with the employer’s payroll vendor?; and 5) what are their participant services in terms of employees getting personalized customer service?

Overall, communication to employees is key for the success of an HSA, Puig said. That education should happen both in, and out of open enrollment periods so it’s not all done in one moment.

“You need to really be able to go deeper into what the HSA can provide for employees,” Puig said, noting that an employer has to be able to create a communication strategy that reaches all types of users, no matter their income level or age.

“We have a lot of different generations in the workforce right now, so it has to be an array of ways in which you reach people in your employee base,” Puig said. “We have to remember how the participant thinks and what they may be feeling if this is the first time they are being presented [with] this type of plan.”