Employee HSA confusion is an opportunity for advisors
The pandemic has further aggravated existing problems with HSAs, namely a lack of awareness about their advantages.
When advisors understand the role that health savings accounts play in financial wellness, they are positioned to help plan sponsors integrate HSAs with long-term retirement savings.
Related: HSAs for all: Unleashing the potential of health savings accounts
The pandemic has further aggravated existing problems with HSAs, namely a lack of awareness about their advantages, as well as a general misunderstanding of how they work. This is an opportunity for advisors to add value beyond retirement planning by offering holistic financial wellness education that boosts HSA enrollment and participation.
Benefits of HSA participation
Employers can save money on health insurance premiums by offering HSA-qualified, high-deductible health plans. They also benefit in several key ways when employees use HSAs to their full potential:
- They will have employees who are reaping tax benefits, increasing retirement savings and getting health care when they need it, rather than putting it off because of cost concerns.
- As a result, they will have a less financially stressed workforce, which is proven to increase productivity, decrease absenteeism and reduce turnover.
A recent survey by Plan Sponsor Council of America found half of employers offer HSAs in their benefits package, but 69% of employees are not clear on the benefits or uses, meaning they’re missing tax advantages and opportunities to increase savings.
HSAs also help employees more easily manage their health care costs, which is a factor in overall employee financial wellness and a significant source of financial stress.
Combating HSA confusion
Many confuse HSAs with FSAs, which have to be used within a given year. Unlike FSAs, HSA contributions roll over year to year, making them great vehicles for saving. Employees can invest in mutual funds to grow savings tax-free in the same vein as a 401(k).
A Health Accounts Employee Attitude Survey shows only 8% of employees get the full benefit of HSA tax advantages, likely because they aren’t aware of or don’t understand them:
- HSA contributions are pre-tax.
- Money in these accounts may be invested; subsequent growth is tax-free.
- Withdrawals are not taxed if they are used for qualifying medical expenses.
- HSA funds are owned by the employee and can move from employer to employer.
Financial wellness and health insurance literacy
Financial wellness programs that include HSA education can be game-changing for advisors seeking to build relationships and stand out from their peers.
Financial wellness education can help spur HSA enrollment and use. Studies suggest those with lower levels of understanding of health insurance concepts were less likely to put money in their HSA and much less likely to have opened an HSA or contributed if they did have one.
Financial wellness education can teach about HSAs in the context of emergency savings and retirement planning, not just health care elections. This is a win for plan sponsors, participants and advisors.
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