Health Savings Accounts (HSAs) are more than a great way to help employees and their families cover healthcare costs, they’re also a terrific tax-exempt tool to supplement retirement savings — and cover health expenses during retirement. But stronger employee communication is needed to better educate workers on their options.
HSAs can provide employees with the help they need paying health expenses today and healthcare costs in the future. The accounts carry a triple tax advantage – contributions are tax-free, distributions for eligible healthcare costs aren’t taxed, and account balances are allowed to build over time – free of taxes.
If only more employees took advantage of HSAs.
It’s true that participation rates in the versatile savings accounts are rising sharply, with more than 25 million American workers now holding accounts with an estimated $75 billion in assets in 2019, up from $64 billion in 2018 and $53.7 billion the year before. And while the State of Employee Benefits Report 2018 from Benefitfocus showed a spike in the percentage of eligible employees putting at least some money into HSAs — hitting 81% (up from 50% in 2017), only 13% are making the maximum contribution ($3,550 for individuals and $7,100 for family plans in 2020).
Worse news, only 11% of employees and 7% of employers surveyed in Bank of America’s 2019 Workplace Benefits Report could correctly identify the basic attributes of an HSA.
Experts say the main reasons so many employees still aren’t opening HSA accounts or making larger contributions is that they don’t know enough about the benefits. Only half of all Americans consider themselves knowledgeable about HSAs, according to a joint report from the LIMRA Secure Retirement Institute and the Insured Retirement Institute, and 40% have the mistaken belief that HSAs are “use-it-or-lose-it,” a myth many experts consider troubling.
It’s little wonder The Motley Fool has called HSAs “the best retirement account you don’t know about.”
The solution is stronger employee communication and education. “Employees may not realize they can save their HSA balances for expenses in retirement and that this can provide an important way to meet retirement spending needs,” said Paul Fronstin, health research director of the nonprofit Employee Benefit Research Institute, which finds that many workers underestimate how much money they need to pay for healthcare in retirement.
Tips and best practices
Educating employees with clear and consistent communication throughout the year is the key. Here are some tips for success:
- Communicate year-round: Employee communication on HSA plans should begin before annual benefits enrollment season and needs to continue after it’s over.
- Employee engagement: Employers need to connect with employees in ways they prefer, and that means texts, emails and other digital techniques above and beyond print reminders.
- Go beyond words: Be visual and use charts and graphics to help break down the numbers. And don’t forget the power of audio and video.
- Use digital tools: Interactivity done right can do wonders for engagement, so be sure to incorporate cost calculators and other digital tools, questionnaires and maybe even gamification in your communication mix.
- Face-to-face interaction: Group meetings and Q&A sessions also can help, and it’s important to have knowledgeable people with the right resources making the explanations. HSAs can be a daunting topic to many, and face-to-face engagement could help. If you’re going to do meetings, by all means, try to make them fun – and maybe even rewarding. Offering prizes can increase attendance and generate some excitement.