HSA — health benefit or retirement benefit?
Health Savings Accounts (HSAs) let individuals enrolled in a high deductible health plan set aside money on a pre-tax basis to pay for qualified medical expenses.
HSAs are growing in popularity as a health care benefit, but are they strictly a health benefit? Or does the fact that HSA funds roll over year to year if not spent make an HSA more of a retirement benefit?
Experts weigh in
Panelists at PLANSPONSOR’s 2023 HSA Conference agreed that HSAs can be used as either a health care benefit, a retirement savings benefit, or both. This will often depend on an employee’s financial situation.
Some employees will need to use their HSA dollars sooner rather than later to pay for health care costs. For them, an HSA is a health care benefit. Employees who are in a financial position to pay for out-of-pocket medical expenses without dipping into their HSA can let the money in their account grow. Then they can use those funds to pay medical bills after they retire making it more of a retirement benefit.
How HSA funds help in retirement
In an annual report published by Fidelity Health Solutions it is estimated that an average couple retiring today should expect to spend $315,000 on health care costs during retirement. An HSA that has been accumulating for decades would certainly be a way to help defray those costs.
HSAs have been around since 2004, but despite that almost 20-year existence, 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,” one of the panelists said, noting a Fidelity survey that showed while 80 percent of employers surveyed were offering an HSA, only 40 percent of that same employee pool reported using the HSA.
Clearer explanations needed
That gap between the number of employees being offered an HSA and those using it, indicates a communication problem. Benefits professionals might narrow that gap by providing clearer explanations about HSAs when onboarding, during open enrollment each year, and throughout the year when things are not as hectic as during open enrollment.
The “two-benefits-for-the-price-of-one” aspect of HSAs — that they are both a health care and a retirement benefit — should not be overlooked when sharing information about HSA offerings with employees.
Key to remember: HSAs are valuable to employees as a heath care benefit and as a retirement savings benefit, depending on an individual’s financial situation. This “two-benefits-for-the-price-of-one” aspect of HSAs should be communicated clearly and often in order to boost employee participation.