HSAs: Is the "S" really for saving?
Health Savings Accounts can be part of a comprehensive financial strategy.
Health Savings Accounts (HSAs) were designed to allow individuals to save for current and future medical needs on a tax-efficient basis. However, they also can be part of a comprehensive savings and investment strategy, according to a report from the Defined Contribution Institutional Investment Association.
The association makes three recommendations for maximizing the benefits of an HSA:
1. Optimize savings. When developing long-term savings plans, individuals must first understand how much they can afford to save. Second, they should consider savings options available in terms of tax efficiency, purpose, expense and access to accumulated capital.
For example, pre-tax savings accounts often include 401(k)s/403(b)s or similar employer-sponsored retirement accounts; IRAs; deferred annuities; college savings plans and HSAs. With so many choices, employees don’t often think about where to put their next “savings” dollar so it will function most efficiently.
2. Invest appropriately. More than 85 percent of employees who have access to an HSA contribute to it, and many employees do not spend their full balance over the course of a year, according to the Plan Sponsor Council of America.
Once employees begin contributing to their HSAs, they usually have an option to invest those dollars. Investing is an important way to grow their balance. HSAs then become more than just a checking account for medical expenses; they are part of a comprehensive retirement savings and investment strategy.
3. Spend wisely. More than half of account owners spend most of their account each year, with nearly one-quarter of individuals spending their entire account balance every year. What about the other three-quarters? Are they maximizing their potential to grow their accounts?
A simple message is best, one that conveys: “The ’S’ is for savings, not spending,” and “the HSA is not a use-it-or-lose-it type of account.” After this foundation is laid, plan sponsors can strive to further change employee behavior through personalized, interactive decision-making tools. These tools can show, among other things, the impact on take-home pay, as well as a streamlined way to compare medical services.
“With proper education, we hope to get employees to think of the “S” in HSAs as being for savings,” the report concluded. “Focusing employee education on the long-term impact of saving in an HSA, both from an investing and tax perspective, can help employees understand how to get the most from their HSAs. This understanding should lead them to make the HSA a key element of their overall retirement strategy.”
See the DCIIA site for the full report, “The HSA: The “S” is for Savings (not Spending!).”
READ MORE: