A recent HealthSavings survey of employers indicated that, on average, more than 50% of eligible employees haven’t even opened a health savings account (HSA), with the primary reason cited being education.
As this and other studies show, employees struggle to understand what an HSA is and how it can help them save money tax-free for medical expenses, now and in retirement. Also, employees are often not able to distinguish HSAs from other health benefits. A recent LIMRA survey found that 40% of Americans confused HSAs with flexible spending accounts (FSAs) by thinking HSA funds are forfeited if not spent by end of year.
What’s causing this knowledge gap? When HSAs first came into existence, they were lumped into a package of benefits alongside FSAs and health reimbursement accounts (HRAs). This led to persistent misunderstandings among employees. HSAs, unlike FSAs and HRAs, are actual bank accounts where real dollars are deposited. They are not “notional” accounts where the employee must incur an eligible expense before funds are paid out.
This is an important distinction. With an HSA, an employee is in possession of real dollars and can control how those funds are used. They can make their own contributions to increase their tax savings and adjust their contribution levels during the plan year if their needs change. They can invest in mutual funds to build a nest egg for retirement and bring their savings with them if they change jobs. Or, they can pay for HSA-qualified expenses out of pocket, watch their HSA balances build over time, then reimburse themselves in the future tax-free for those expenses.
None of these features apply to FSAs or HRAs. They are simply spending vehicles with no option to plan for down-the-road health care costs or allocate funds for the future. In fact, because of their investing ability, HSAs can end up more strongly resembling a 401(k) or individual retirement account (IRA) than an FSA or HRA.
Unfortunately, many employers and benefits brokers lump the HSA offering alongside the FSA and the HRA in an alphabet soup of health benefit offerings. Everything is presented on the same shelf with little attention paid to the very important differences. It’s no wonder employees are confused.
The key to improving employee understanding of the HSA is to uncouple it from these other accounts and ensure it is offered by a qualified administrator with a singular HSA focus. These administrators are able to focus on the important lifetime benefits HSAs provide for all employees, no matter where they are on their health savings journey.
Consider for a moment two employees. One is just starting his career, is new to the world of benefits, and is focused on paying off student loans and building an emergency fund. The other is a C-level executive who is a seasoned investor and is focused on saving for a comfortable retirement. These employees have very different needs and goals, but they have one thing in common: neither will be helped by HSAs being presented alongside FSAs and HRAs. The first employee will likely just get confused, while the second employee could very well end up not understanding how an HSA can be invested as part of an overall retirement planning strategy.
A dedicated HSA provider will be able to tailor communications to meet employees where they are and help them achieve their specific needs and goals. Given the powerful benefits HSAs offer to employees, targeted education from an experienced HSA provider can play a significant role in helping them meet their long-term health and financial wellness goals.
By decoupling HSAs from other health benefits and choosing a dedicated HSA provider, employers can maximize their employees’ chances of making the best use of their HSAs, now and in the future.
James Denison is director of marketing at HealthSavings.This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.
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