Rethinking HSAs

With the high cost of health care, employees are using HSAs as spending, not savings, vehicles, and if more people had access to them, it might help with America’s health care crisis.

Health savings accounts (HSAs) have been touted as an optimal vehicle for employees to save in to cover health care costs in retirement, but not many employees are doing that.

A survey released this month from Further, a national health savings administrator, found 65% of consumers report leveraging their HSA as a spending resource, with 23% stating they use their account equally for saving and spending. Yet, more than two-thirds of employers associate HSAs with savings only, suggesting a gap in how employers are positioning these accounts compared with how employees are using them.

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Matt Marek, CEO of Further, says, “By positioning HSAs as saver only tools, employers are missing the opportunity to help their employees meet a critical need: paying for health care costs today. As an industry, we need to change the narrative regarding HSAs to empower employees to be active health care consumers and provide resources on how to navigate this complex industry.”

Particularly during COVID-19, when people may have seen their income drop, the use of HSAs as spending accounts has accelerated, says David Speier, managing director, benefits accounts, Willis Towers Watson, in Washington, D.C. “They are tied to plans with higher deductibles; employees have spending needs and they are already saving in retirement accounts,” he explains. “We see in all our data that pure savers are a small fraction of overall account holders. When more are living paycheck to paycheck, there will be more spenders, not savers.”

It’s also an education issue, Speier adds. Employees don’t understand how to use the accounts, that there is no use it or lose it feature as there is with flexible spending accounts (FSAs) and that HSAs offer a triple tax advantage. He also says people don’t understand what they would be saving for in an HSA. There’s not a lot of understanding among employees about the significant cost of health care in retirement. “They know that with a DC [defined contribution] plan, they are saving to pay their bills, for what they need to live, but it’s not clear to people that Medicare doesn’t pay for all health costs in retirement,” Speier explains.

But HSAs aren’t just for retirement, he says. “It’s a continuum. Maybe five years in the future an employee will have a baby.” Speier says HSA education can be important at different moments in an employee’s life, so having it be part of a financial wellness program is a good idea. It can also be linked to health benefit education and retirement benefit education. And, he adds, enrollment is the perfect time for education as employees make their initial savings decision.

Beyond basic education, Speier says he believes good decision support tools offered during open enrollment or savings election apps, online spreadsheets or Q&As with suggestions will help employees personalize their decisions.

Expanding Availability and Aiding the Health Care Crisis

Sean Engelking represents the HSA Council before Congress, the White House and the U.S. courts. As founder and CEO of Starship, a venture-backed HSA startup in New York City, he says he is “laser-focused” on establishing partnerships with gig-economy companies so they can provide adequate benefits to their independent workforces.

Engelking says the creators of HSAs wanted individual retirement account (IRA) providers to pick them up, but, instead, they got picked up by benefit providers. Starship looked at workers for whom HSAs are not available. “We want people to take advantage of HSAs, to be able to open one up over the phone, and have one that automatically invests for them,” he says.

He points out that the average American thinks they have to have an employer-sponsored high-deductible health plan (HDHP) to contribute to an HSA, but, in reality, roughly 10% of Uber drivers, for example, who are gig economy workers, are HSA-eligible. “If someone gets insurance on their own or is covered on a spouse’s plan, we check to see if they have the right health insurance to be HSA-eligible, and we do a final check before we cut a tax form for them,” Engelking says.

“Part of the issue is having an HSA tied to employment and having a high-deductible health plan,” Engelking says. “Everything is a high-deductible plan, basically, if you look at the national numbers about health plan deductibles.

“Why wouldn’t we try to do something about the crisis [regarding the cost of] health care? It shouldn’t matter how or whether people work, they should be able to have HSAs,” he adds. “We are essentially asking Congress to decide that if someone has insurance,” any Patient Protection and Affordable Care Act (ACA) plan, “they can have an HSA.”

It is too restrictive to have an HSA tied to a certain health plan; letting everyone have one is a simple solution, Speier says. It is restrictive not only to employees but to employers. If employers want to encourage employees to see certain specialists or they want to subsidize cancer treatments, it makes the plan ineligible for HSA-pairing, he explains. “Why should designing a health benefit for a better outcome take away employees’ ability to have an HSA?” he queries.

Speier points out that the IRS said HDHPs will not lose their special status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met, but if there has to be an announcement or guidance for every single situation, it will be cumbersome. “They could make it tied to more a generic threshold amount of covered services for an exemption,” he suggests.

Engelking says lawmakers are in kind of a “posturing stage” when it comes to legislation to expand HSA availability. He says he believes the conversation will evolve over time. However, Engelking contends that something is needed in the next relief bill. “We have optimism that something will happen,” he says.

Several legislative proposals, including the recent Pandemic Health Care Access Act, have already introduced the idea of extending HSA eligibility to health plans beyond HDHPs. And Engelking says legislation to do so was introduced last year.

“The benefits industry is asking people to do more on their own—think about the move from pensions to 401(k)s. Employers used to take better care of employees. In that sense, we need a better health care regime,” he says.

Engelking also notes that employer-driven benefits are not flexible when it comes to the new way of working—with gig workers, contractors or freelance employees. “We should rethink the way benefits are offered because of the way people work. Some people work multiple jobs, but consider themselves full-time employees even though it’s all 1099 work,” he says. “Why wouldn’t people think this is a privileged person’s handout if not everyone can have one?”

Even if everyone were allowed to have an HSA, many would not use them and many would not use them for retirement savings. “But it can’t hurt to allow them,” Speier says. He notes that more sources would provide education that would encourage HSA use, such as banks or brokers that sell Medicare.