While employers are continuing to evaluate their health-care offerings, high-deductible health plans (HDHPs) remain a popular choice. With that, employees enrolled in the HDHPs are becoming more familiar with the health savings account (HSA) that accompanies HDHPs.
And for a third straight year, HSA contributions have increased for family and single coverage, according to research from Alight Solutions. Contributions increased from $3,388 to $3,500 for family plans and from $1,414 to $1,479 for single plans.
A better understanding of the benefits associated with HSAs, thanks to improved education by employers, is likely the cause of this, said Karen Frost, senior vice president, health strategy and solutions leader at Alight.
“When HSAs first were introduced, many employees who enrolled in HDHPs looked at the HSAs as optional and extra,” Frost said. “Now, through a combination of HDHPs and really strong employer communication, we are seeing a really strong natural link between the two, and as a result of that, we’re seeing contributions go up.”
While contributions into HSAs are increasing, so is the use of HSAs for medical expenses. Findings from Lively’s “HSA Spend Report” show that 96% of annual contributions were spent on expected expenses and routine visits, which means many employees aren’t utilizing HSAs as a retirement vehicle — the main intended benefit of an HSA.
“Rising health-care costs will have serious implications on the well-being of individuals and families,” said Shobin Uralil, chief operating officer and co-founder of Lively. “As much as people are increasingly putting HSA money aside, our 2019 report alerts us to one dangerous outcome: Rather than saving funds to create a safety net for health-care costs into retirement, Americans have to use almost the entirety of their HSAs to cover basic health needs every year.”
Frost said Alight’s research indicates a 50/50 split between spenders and savers, but among the savers, less than half of those are saving their HSA money all the way to retirement. While avoiding any use of those savings until retirement is the optimal outcome, Frost said they’re pushing for somewhat of a compromise going forward.
“We’re trying to get people to save as much of that HSA as they can to build up a balance to cover their full out-of-pocket maximum if they should be in a situation where they need it,” Frost said. “There’s a group of people who forego any HSA utilization and use it as a retirement vehicle and those are your investors.”
Lively’s research found that the average HSA account holder spent their savings on doctor visits and services (50%), prescription drug costs (10%), dental care (16%), vision and eyewear (5%), chiropractor visits (3%) and lab work (2%).
Uralil’s hope is that as employees progress under HDHPs, they realize the value of contributing to and saving more with HSAs so it can be used as a retirement benefit.
“High deductible health-care plans are the new norm, and that’s not going to change anytime soon,” Uralil said. “Combine that with rising health-care costs in almost every consumer-spend category, HSAs are now vital to affording everyday necessities in this country. As such, we must ensure that Americans with HDHPs take advantage of HSAs to put more savings in their pockets.”
Frost noted that while HDHPs are still a very popular choice among organizations, many employers are still looking for what’s next beyond HDHPs in an effort to provide the best affordable health care for their employees. But a consistent theme, she said, is an uptick in employees enrolling in HSAs for the first time.
As that trend continues, it’s important for employers to provide the proper resources and education to their employees to help them secure a better retirement future.
“There’s an increase of people understanding how important the linkage is between the HDHP and that HSA and we see increases in the contributions to their HSA,” Frost said. “Guiding people through that process of enrolling into an HDHP paired with an HSA, we’ve found that to be a really effective way to getting HSA participation and increasing it over time.”
Alessandra Malito identifies three trends that could influence retirement plans in this article for MarketWatch. Using a HSA for the long haul is one of these trends and Malito explains the tax advantages of using this tool as a retirement vehicle.
Future Looks Bright for HSAs
A blog post by Flex Benefits examines the future for HSAs and why they are increasing in popularity. The article provides various statistics, including that the number of HSAs surpassed 25 million in 2018.
Maximizing Your HSA
Robert Farrington of Forbes provides tips for how employees can best utilize their HSAs to achieve optimal results. Farrington notes that the main perk of a HSA is that you can deduct contributions to the account each year up to annual limits, meaning contributing to a HSA will directly reduce the amount of your taxable income.
About the Author
Brett Christie is a staff writer at WorldatWork.