How HSAs can bridge the health & wealth gap: Start educating employees now

In 2023, employers have seen mixed news on retirement savings benefits. On the one hand, employees were more interested than ever in these benefits, and looked to employers to lead the way in helping them learn more about how to save for retirement. On the other hand, persistent worries about the economy led many Americans to believe that they were falling behind in saving for retirement.

A new report from Voya Financial underscores the valuable role that Health Savings Accounts (HSAs) can play as a supplement to a retirement savings plan. The report, “Amplify the power of HSAs to booth health care savings—now and in retirement,” explains that the preferential tax treatment of these accounts can help workers put away more money for retirement.

The “triple tax benefits” of HSAs are an important point: the Voya report noted that HSA contributions are tax free, investment income from HSAs are tax-free, and withdrawals are also tax free. This gives investors a great deal of flexibility with these accounts, officials noted—but they need more understanding of how such savings plans can help them.

“A majority of employees do not fully understand how HSAs work, and as a result do not know how to use those benefits effectively,” said Nate Black, Vice President, Health Solutions Product Development at Voya. “When it comes to support in this area, employees need their employers to educate them about HSAs and help them make benefits decisions.”

A widening gap in retirement savings

The report begins by noting that many Americans feel they are falling short of their retirement goals. “Many employees simply don’t have enough savings to cover health care expenses and daily living expenses in retirement,” it said. “At year-end 2020, employees in their 60s had an average 401(k) plan balance of just $350,000. If health care expenses potentially consume about half of those savings, it may severely impact their ability to meet other financial needs in retirement.”

The report explains how HSAs are an under-utilized tool that could help close the retirement health care savings gap: “HSAs can help bridge this health and wealth gap if employees are adequately educated on how to use them. But American consumers do not have a good grasp on how HSAs work and how the accounts can help them meet their long- or even short-term health savings needs.”

Voya consumer research has shown that roughly half or fewer of U.S. workers have a good grasp on the attributes of HSAs. In addition, their 2022 polling showed that 62% of respondents said that the reason for putting money into an HSA is to pay for current health care expenses; 61% also saw it as a way to have money in case of future health care expenses. But only 25% saw it as a way to invest money for health care expenses in retirement.

Giving employees more information on HSAs

The report goes through a number of strategies for better communicating the value of HSAs to workers, and for designing an HSA program that will work well for their employees. The report noted that about one third of respondents say they would like education and guidance from employers on how much to save for employment, how to invest, and how to build emergency savings. The 2022 survey found that 18% of employees said they wanted more information on how much to contribute to an HSA—this was a 4-point increase from the 2021 survey.

Related: Entry-level employees or pre-retirees/? The right HSA messaging is key

This education can be a year-round process. “Research at Voya has found that about two-thirds of employees (65%) are open to receiving information about their benefits from their employer outside of open enrollment to help them understand their benefits,” Black said. “As a result, digital support tools are also an important consideration, especially when it comes time to benefit selection and helping employees understand not just what solutions would support their individual needs, but then how to also use those benefits.”

Other steps the report recommends are using personalized messaging, an emphasis on tax benefits of HSAs, framing the use of HSAs in the context of savings for unplanned medical expenses, and providing employees with investing guidance.

The need for more education is clear, the report said, with the survey finding that only 3% of respondents are able to correctly identify all the attributes of an HSA. But an ongoing education effort will pay off in many ways, officials noted. “Offering easy access to information, tools and guidance to support the benefits decision-making process can help workers improve their overall financial wellness,” Black said. “Even more, as we approach open enrollment season, now presents an opportune time to ensure individuals understand the value HSAs can offer when it comes to enrollment in the solutions as well.”