More and more companies today understand that financial wellness is emerging as a key factor in employees’ overall well-being. They are seeing a strong link between an employee’s personal financial situation and the level of stress they are experiencing in their jobs and with their health, relationships and productivity.
Retirement in particular seems to have people worried. Not being able to retire when they want to and not having enough money saved when they do retire are their top financial concerns. PwC’s 2016 Employee Financial Wellness Survey found that nearly half (47%) of all employee have saved less than $50,000 for their retirement and 44% plan to retire later than they previously planned (up from 36% last year).
What can employers do? They need to recognize this as an opportunity to help employees with their financial outlook through their benefit offerings. For many companies that have already made the shift to high deductible health plans (HDHPs), this means ensuring that their HDHP is an HSA-qualified plan. It also means they now need to consider adding the health savings account (HSA) portion to their benefit offerings.
The tax preferred treatment of money saved for out-of-pocket medical expenses is really the greatest benefit of being covered under an HSA-qualified plan. According to recent research by Mercer LLC, 50% of employers now make HSAs available for employees compared to only 14% in 2009. Employers need to pick up the pace on offering HSAs to their employees to realize their long-term savings impact.
It may seem like health savings accounts are still in their infancy in this 13-year-old industry, not unlike 401ks were in the 1980s. HSAs offer important value to account holders as a holistic approach to a bigger picture benefits plan, according to a recent Pensions & Investments article. That’s because they provide another vehicle for savings — an important component to work into retirement education and planning.
Health savings accounts are gaining traction. The latest numbers put total HSA assets around $30.2 billion at the end of 2015, which is triple the 4.2 billion amount reported in 2009 by the 100 largest HSA administrators. Employers can do their part to encourage participation by providing seed money for new accounts, offering matching funds and/or making contributions based on employees’ reaching various health and wellness goals.
They also need to help employees become more savvy about how to save and invest in their HSA. For example, PwC’s 2016 Employee Financial Wellness Survey found that in fact only 38% of respondents are contributing to their HSA and of those contributing only 18% plan to use the funds for future healthcare costs in retirement. An April 2016 Bank of America Merrill Lynch survey found that 55% of HSA account holders usually spend their entire balance within a calendar year while 53% consider them to be a way to cover short-term health expenses rather than a long-term savings vehicle.
That’s why benefit advisors and human resource professionals are being encouraged to include discussions about HSAs in employee retirement planning as well as annual medical benefit communication. According to the PwC survey, running out of money (45%) is employees’ biggest concern about retirement, followed by health issues (29%) and healthcare costs (28%). Health savings accounts can help on all three of these fronts.
Employees who make maximum yearly contributions and use other money to pay for current healthcare expenses need to understand that money in their HSA can be used tax-free for Medicare Part B, Part D and Medicare Advantage premiums (when they turn 65). Plus, they can be reimbursed tax-free from the account for any eligible expenses incurred since it was opened. They’ll essentially have a tax-free stash of money for the things that worry them about retirement.
Due to employees’ growing financial concerns and the potential long-term impact of these issues, employers need to provide comprehensive education about HSAs to produce behavioral changes necessary to improve their employees’ financial wellbeing. If employees can become more comfortable with HSAs and the concept of investing, they will be more likely to develop a strategy that includes these accounts as part of their complete retirement saving plan.