Maximizing HSA participation by building a financially literate workforce

With the rising cost of health care, managing out-of-pocket medical expenses is a top priority for many individuals and families. Health savings accounts (HSAs) offer significant benefits, including tax advantages, flexibility in spending and long-term savings potential.

An HSA is a tax-advantaged savings account designed for individuals with high-deductible health plans. Unlike Flexible spending accounts, funds in an HSA roll over year-to-year, accumulate indefinitely and have ability to earn interest on investments, making them a powerful tool for future medical expenses or retirement savings.

Properly educating employees on their HSA options in conjunction with their High Deductible Health Plan is crucial. Maximizing HSA participation requires collaboration between employers, employees and advisors and benefits all parties by creating a financially literate workforce.

The triple tax advantage

One of the most compelling features of an HSA is its triple tax advantage:

1. Tax-deductible contributions: Contributions made to an HSA are tax-deductible, reducing taxable
2. Tax-free growth: The funds in an HSA grow tax-free.
3. Tax-free withdrawals: Withdrawals for qualified medical expenses are tax-free.

This combination of tax benefits makes HSAs attractive for those seeking to minimize their tax burden while saving for health care costs.

Current landscape and trends

HSA participation rates hover around 60%, indicating untapped potential. Despite nearly 60% of eligible employees enrolling when given the opportunity, only 70% of employers offer multiple health plan options alongside HSAs. This gap suggests significant room for improvement through increased employer engagement and education.

The number of HSA accounts grew from 30.2 million in 2020 to 37.4 million in 2023, with the largest jump of 3 million from 2021 to 2022. Although this growth is encouraging, it also highlights the need for better employer understanding and promotion of HSA benefits. Without proper encouragement, 21% of HSAs remain unfunded in their first year, leading to missed investment opportunities.

Role of financial wellness educators

Financial wellness educators play a crucial role in boosting HSA engagement and participation. According to a 2020 Devenir report, people retiring at age 65 will need approximately $300,000 to cover medical expenses, a figure projected to grow by $10,000 annually. Most people primarily consider their 401(k) for retirement, often overlooking the significant medical expenses that could deplete their savings.

Employers should give educators a platform to help their employees understand both the benefits and potential pitfalls of HSAs, using tools such as scheduled webinars, open enrollment presentations and access to financial advisors. Tailored programs foster financial literacy and wellbeing among employees, helping them make informed decisions about their HSAs.

Holistic education initiatives

Effective HSA education should be integrated into broader financial wellness programs. It is essential to include HSA information not only during open enrollment but also in ongoing financial planning discussions. Most employees don’t elect their medical benefits with retirement in mind, so clear education on HSA benefits is vital.

Comprehensive education covers HSA tax advantages and alignment with long-term financial goals. It is critical to dispel misconceptions such as the “use it or lose it” myth associated with flexible spending accounts. Employees should know about investing with tax-free dividends within an HSA, enhancing its attractiveness as a long-term savings tool.

Employers should ensure third-party advisors are well-versed in HSA investment options and strategies that integrate HSAs into overall retirement planning. Regularly discussing HSAs alongside 401(k)s can help employees understand how these accounts complement each other in building a robust retirement plan.

Strategies for maximizing HSA participation

To help maximize HSA participation, employers can adopt several strategies:

• Provide regular education: Incorporate HSA education in financial wellness programs, open enrollment sessions and regular communications.

• Highlight tax benefits: Emphasize the triple tax advantages during employee orientations and benefit meetings.

• Encourage employer contributions: Offering employer contributions can significantly boost participation rates and help employees start their savings journey.

• Promote long-term savings: Educate employees on the long-term benefits of HSAs, including using them as investment vehicles for retirement.

• Leverage technology: Use online platforms and mobile apps to make managing HSAs easier and more accessible for employees.

Read more: HSA-like options for employees in high demand, survey shows

Maximizing HSA participation requires a collaborative effort between employers, employees and advisors. By fostering a financially literate workforce, organizations can enhance employee wellbeing and help ensure individuals are prepared for future health care expenses and retirement.

Encouraging HSA participation isn’t just about offering a benefit – it’s about empowering employees with the knowledge and tools to make informed financial decisions. As health care costs continue to rise, HSAs will play an increasingly critical role in ensuring financial stability and peace of mind for employees.

Cat Torres, CFC, HSAE, is a health and welfare sales consultant with employee benefits provider Sentinel Group.