Health Care Saving Increasingly Like Retirement Saving
This is significantly boosting demand for vehicles such as health savings accounts (HSAs), according to Bank of America Merrill Lynch. The firm’s Wellness Scorecard found total assets in Bank of America HSAs grew by 48% between January 2012 and January 2013 (see “BOA Merrill Lynch Releases Wellness Scorecard”). Year after year, average HSA balances have also continued to grow – from $1,741 in 2011, to $2,029 in 2012, and now to $2,093 in 2013.
According to the 5th semi-annual Health Savings Accounts survey conducted by Devenir, HSAs grew to an estimated $15.5 billion in assets representing more than 8.2 million accounts at year-end 2012—a year-over-year increase of more than 22% for accounts, and a 27% increase in assets (see “HSA Assets Surpass $15B”).
Bob Kaiser, head of Health Savings Solutions for Bank of America Merrill Lynch, told PLANSPONSOR there are some factors driving people to focus on health care now more than ever. People see in the news every day something about the Affordable Care Act (ACA). “Never before has it been mandated that you have to have health insurance, and this brings it into big focus,” he said. He explained that premiums will go up because more people are being added to the insured population, meaning more administrative overhead.
In addition, the notion of people living longer is sinking in; the idea of living into your 90s is becoming real. In addition to retirement income, health care savings is a factor. People realize if they lack health care savings, health care expenses may eat into other savings, so why not take advantage of pre-tax vehicles as they do for retirement, Kaiser said.
Many parallels exist between planning for retirement and planning for health care costs. Both can be difficult, long-term financial endeavors that require smart decisions about saving and investing. The responsibility for meeting health care costs and planning has shifted from corporations to individuals—much like retirement planning over the past three decades—and will present workers with major challenges.
According to Kevin Crain, head of Institutional Retirement & Benefits Services at Bank of America Merrill Lynch, there is a view that HSAs will turn into a longer-term savings investment account, so they will be similar to defined contribution (DC) plans. Plan sponsors are considering more diversified investment structures, and have begun seeding HSAs just like they do DC plans. They are looking to contribute together and use advisers for help determining how to spend and invest their dollars, Crain said.
Kaiser added that HSA accounts are individually owned, so they are portable like DC retirement plans. And, unlike a flexible spending account (FSA), employees can put a considerable amount of money into these accounts—$7,450 this year. Add that to the DC plan limit and it comes to thousands a year of tax-advantaged money employees can put away, he noted.
Employees will start to think as consumers and want to shop around and manage things they have control over, like investments, Kaiser contended. Employees are more comfortable with DC plans, so if employers can align funds for HSAs with those for DC plans, employees will trust HSAs, use them more, and they will grow, he said.
This is why there is also an emerging marketplace for exchanges. Twenty-six states have declined offering an exchange and deferred to the federal government, Kaiser pointed out. So, now there is a trend of large corporations—such as Aon Hewitt and Mercer—creating exchanges in which employees can shop around and insurers can offer solutions in a competitive fashion.
Just as with retirement plans, as employees are given more control over their health benefits, a need for more education will arise.
“What we’ve seen in the evolution of employee education is plan sponsors are sensing a need to integrate,” Crain said. They want providers and advisers to educate employees about savings in general, to integrate education about spending, retirement savings and health care savings. He noted that some of Bank of America’s plan sponsor clients use decision points during the year to send messages to employees. For example, during annual health care enrollment, they tie in education about increasing savings or enrolling in retirement plans. “More than 500,000 people have been enrolled in DC plans using this technique,” he said.
According to Kaiser, large plan sponsors are driving hard in terms of educating about and equipping employees for overall financial wellness. They offer decision-support tools to aid with shopping for health care, which helps employees become consumers. In the small business space, there is a movement to “full replacement”; high-deductible health plans (HDHP) save money for these businesses, so they will take a portion of that savings and seed individual health care accounts.
“With the Scorecard, we understand wellness is broader than just having a retirement plan. We see growth in HSAs and FSAs. There is a good, solid base for savings in employer offerings; we have to be stewards making things even better,” Crain concluded.