Your company has a qualified high deductible health plan (QHDHP) and you’re looking to select an employer health savings account (HSA) plan provider. One of the greatest advantages to an employee who enrolls in a QHDHP is taking advantage of the HSA’s triple tax advantage. In fact, for many employees, contributing to their HSA is more important than their 401(k) plan — but this is a topic for another day.
One would think it just comes down to picking a provider that has been in the employer HSA marketplace for several years, offers a mutual fund investment lineup they stand behind, and has reasonable fees.
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…Not so fast
There is a big difference between offering a basic HSA plan that just deducts employee paycheck contributions each pay period, and an integrated HSA plan designed to enhance health care savings. A well-structured HSA includes features, benefits, and educational support that empower employees to optimize their health care savings—both today and into retirement—ultimately maximizing their financial wellbeing.
You might be surprised to realize that most HSA account holders do not take advantage of their investment account within their HSA. Here, they can invest in mutual funds for potentially greater returns. According to the 2024 Midyear Devenir HSA Research Report, only 9% of HSA accounts have at least a portion of their dollars in an investment account. This leaves 91% of HSA assets in the spender account, earning just the HSA bank account interest rate, which might be less than you think.
Employing a few lesser-known HSA features may make all the difference. Consider using an HSA plan supported by a provider willing to offer:
- Auto asset allocation on new payroll contributions
- Customization of the investments offered in your employer HSA plan so it can mimic your 401(k) plan for employee ease of use and understanding
Auto asset allocation on new payroll contributions is a game changer
Unlike 401(k) plans where employees can predetermine how their new payroll contributions will be allocated, many employer HSA providers require 100% of employee payroll deductions be deposited directly into the HSA Spender Account or bank account, earning minimal interest. It may seem trivial, but what percentage of your employees do you believe will remember or take the time to log in to their HSA to place online trades into longer-term investments? Inertia, or lack of action, is unfortunately a powerful force on 401(k) participants and HSA accountholders.
Having immediate access to one’s HSA Spender Account or bank account to cover the cost of qualified medical expenses is the HSA’s greatest benefit. However, imagine the impact on the total lifetime health care savings amount an employee would forego if the assets earmarked for use many years down the road, maybe in retirement, are left in the Spender Account earning the HSA’s bank account interest rate.
Using the same mutual funds in your HSA and 401(k) plan simplifies investment education for your employees
It is no surprise there is an entire field of academic study, financial psychology, that addresses how financial decisions tend to be based more on the human side of financial trade-offs rather than purely on numeric facts.
401(k) plans can leverage a Qualified Default Investment Alternative (QDIA) to help employees who are not comfortable with making investment decisions. When run properly, HSA plans do not fall under the same Employee Retirement Income Security Act (ERISA) regulations as a 401(k), and do not allow for a QDIA. However, it is a little-known fact that employer HSA plans can mimic the investment lineup of their company’s 401(k) and safely avoid being covered by ERISA.
Why might this be helpful to your employees? It all ties back to simplicity. You already provide a prudently selected and monitored set of mutual funds based on your current employee base. For example, if one of your employees is already comfortable with a specific target date fund, or a combination of mutual funds for long-term investing in their 401(k) plan, that employee could use the same mutual fund(s) for any HSA assets earmarked for long-term growth. This is all while they can use the money market or HSA bank account (demand deposit account) for anticipated short-term qualified medical expenses.
Would your employee population benefit from the growth potential of their HSA investment account?
If your employees are investment-savvy, comfortable managing different investment options, and motivated to periodically reallocate funds from their HSA Spender Account or bank account into mutual funds within their HSA Investment Account, then most HSA providers will work.
On the other hand, if your employees need a little more handholding and you would like to simplify their path to the possibility of better health saving outcomes over their lifetime, it might be worth a few minutes of your time to research the pros and cons of different HSA providers. Interviewing prospective HSA providers can help determine how they can effectively help your employees maximize their health care savings outcomes.
John Corrieri, President, Saturna Trust Company and Vice President of Employer Services
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