PSNC 2019: How to Save for Health and Retirement

Utilizing health savings accounts (HSAs) to save for health care expenses in retirement is a balancing act, as inevitably there will be a time to spend, and participants need education about how to maximize HSA benefits.

from left: Jamie Greenleaf, Cafaro Greenleaf; Joe Connell, Kevin Robertson, Deb Culhane, Photograph by Matt Kalinowski

Health savings accounts (HSAs) are now being touted as a vehicle for saving for health care expenses in retirement, but HSA participants still have a lot to learn about these vehicles.

Speaking on a panel at the 2019 PLANSPONSOR National Conference, Deb Culhane, CEO of Optum Financial Services and president of Optum Bank, said one common element of people eligible for an HSA is they are consumers of health care in a high-deductible health plan (HDHP), and most are totally confused about how to save and spend health care dollars, and they need education. There has not been enough guidance about how HSAs could work for them, and people haven’t been properly educated about how this can provide financial stability for them.

Kevin Robertson, senior vice president, chief revenue officer, HSA Bank, said the use of HDHPs with HSAs is about consumerism first; participants need to think and act differently when “buying” health care services and products. “We are in the second generation of HSAs and consumerism. The first generation was about understanding what is an HSA, but now that people have been in them, they asking how to maximize HSA benefits. Mostly, they have been putting money into HSAs and spending it,” he said.

Joe Connell, partner at Sikich Financial LLP, noted that for one thing, participants still get HSAs confused with flexible spending accounts (FSAs), especially the use-it-or-lose-it feature. “Plan sponsors are still trying to get participants to understand that HSAs are savings accounts, like saving plans. We need easier to understand one-pager education like 401(k) plans started doing. Education should work first on the savings component and focus on the triple tax advantages of HSAs before focusing on investing HSA savings,” he said.

According to Culhane, HSAs are like a 25% coupon for health care, and participants don’t understand it will never be taxed.

Robertson said participants will have to embrace the fact that HSAs are both spending and savings vehicles, not like retirement plans. “I call it a lifecycle product. Plan sponsors need to help people understand the ebbs and flows. There will be a time—for example, when children are young—that participants will spend more from their HSAs. At other times, they can build up their accounts,” he said.

According to Culhane, people are not ready for what they will face in health care costs in retirement. “Our estimate is that one out of four people will have a chronic condition to manage in retirement,” she said. She added that it is possible to personalize expected expenses for each participant based on claims data. “That kind of messaging would make it real, if we tell people they are short this much and they may need to put ‘X’ amount more in their HSAs,” Culhane said.

Connell said plan sponsors and advisers can’t hit them with a big number, such as “You need to save $300,000,” which may overwhelm them. He told conference attendees that education first needs to focus on the benefits of saving in the plan. Connell added that providers are just starting to put HSA balances in retirement calculators.

Culhane contended that the best time to communicate is at the moment of a health care event. “Imagine a health care advocate an employee can call when he is just diagnosed with diabetes, and the advocate showing the employee how the HSA can help,” she explained.

Robertson said plan sponsors need to personalize education as best they can—every employee’s circumstance is different. Plan sponsors should find out what participants’ needs and goals are for health care and expenses. For example, can they afford to pay for out-of-pocket expense with other resources and use HSA savings for future expenses?

He added that educating at the time of a health care expense is a good strategy, but plan sponsors still have to educate employees about HSAs ahead of time or they won’t have any savings at the time of a health care event.