Managing Health Care Costs Now and Later

The value of an HSA while working and as a retirement savings opportunity.

PS316-TL-Portrait-Article-Fidelity-Eric-Dowley.jpgEric Dowley, Senior Vice President at
Fidelity Investments

Health savings accounts (HSAs) were introduced as part of the movement towards consumer-driven health care as a way to help Americans take a more active role in understanding and managing health care costs. As they have continued to increase in popularity over the years, the HSA is now being discussed as a true savings account, meaning not only does it have benefits as a way to save on health care costs during one’s working years, but its stored assets can be an integral part of planning for retirement. Eric Dowley, senior vice president at Fidelity Investments, spoke with PLANSPONSOR about how companies have expanded their conversations with employees to help them recognize the value of the HSA.

PS: What is an HSA and to whom are such accounts currently available?

Dowley: An HSA is a highly tax-advantaged account to pay for qualified medical expenses that can be used in the near term as well as for savings in the longer term. They’re available to anyone who enrolls in an HSA-eligible health plan. These plans work much the same way as traditional plans where you get comprehensive coverage for a wide variety of services, no-cost preventative care, typically a wide network of doctors and prescription drug benefits. The difference is that there’s a higher deductible, which can mean more upfront costs on services for individuals who select an HSA-eligible plan than with a traditional plan.

The HSA was originally intended to help pay for the expenses that would have been covered under the traditional plan. But many people find that they don’t use all of the money, and their balances begin to grow. They start to recognize that the HSA can be part of their long term savings strategy since money in the HSA carries over year-to-year.

PS: As the interest has broadened, why are they now becoming part of the retirement savings and income conversation?

Dowley: There are a couple of dynamics going on, and it sort of mirrors what happened in the retirement space with a migration from pension plans to 401(k) plans. People today are not receiving retiree medical benefits the way they were even 10 years ago, so there is that shift from a benefit perspective. On the other side are ballooning health care costs. Fidelity does a study every year on expected medical expenses in retirement. In 2015, we estimated a couple retiring at age 65 would need $245,000 to cover medical expenses in retirement. That is obviously a significant portion of people’s savings from a retirement perspective. Thinking about the medical expenses is an important part of understanding your overall retirement readiness. In addition, employers and employees are no longer separating health and financial wellness, so having a resource like the HSA helps them kill two birds with one stone.

PS: How can companies help employees recognize the value of an HSA and how can they engage employees to put money aside and save into these programs?

Dowley: In terms of the value side of things, a lot of this is the way that the HSA-eligible plan and the HSA are positioned. There has been a migration to these types of plans, but maybe not a full embracing of them. They can feel as if people are getting put into them versus choosing to be in them. I think that companies can switch that dialogue—and many have. There are many benefits for employees in opting into an HSA-eligible health plan and an HSA. Employers can help change the perception by highlighting the benefits, providing clear education on how they work and helping dispel common myths about them. Many people don’t know that unused money in the HSA carries over each year and is yours to keep, even if you change employers or health plans.

Next, what we’ve found is those companies that really embrace the idea of educating people about how these plans work tend to get much better engagement and better adoption. If employers put in the time, set clear expectations and help their employees understand the benefits, they will see people become more comfortable with it. We also find that people like the plan better the longer they are in it.