As employees think about the affordability of health care now and in the future, 82 percent see medical costs as their biggest challenge. And yet only 25 percent rank contributing to a health savings account (HSA) as a top current financial priority, falling below saving for retirement in a 401(k), paying for essential day-to-day expenses and paying off debt, according to a new study by Willis Towers Watson. Based on the Willis Towers Watson 2018 Health Accounts Employee Attitudes Survey, the majority of employees (69 percent) who didn’t enroll in an HSA say they chose not to because they didn’t see the benefit, understand HSAs or take the time to understand them.
Employees use HSAs as spending—not savings—accounts. HSAs are tax-advantaged accounts that employees and employers can contribute to annually up to certain limits and can be used by employees to pay allowable health care expenses. HSAs have three distinct tax advantages:
- Contributions are pre-tax and reduce an employee’s total tax liability.
- Account funds used to pay medical expenses are not taxed on withdrawal.
- Funds can be invested, and growth on invested funds is not taxed if used to pay medical expenses.
The HSA belongs to the employee, who retains the funds even after retiring or leaving the employer, so employees can utilize HSAs as a retirement savings vehicle in addition to a medical spending account.
While HSAs can be a high-value option to help employees prepare for health care costs in retirement, most employees use them primarily as spending accounts for immediate health expenses. Two-thirds of respondents (65 percent) use their HSA money for current health care needs, large and small, while 8 percent focus on saving their funds for the future. Because employees regularly use HSAs to pay for current health costs, less than half (45 percent) have more than $5,000 saved.
“From the data, it appears most employees are missing out on many HSA benefits, including the triple tax advantage, which can be invested to grow throughout their careers,” said David Speier, managing director, Benefits Accounts, Willis Towers Watson. “In reality, many employees view HSAs as a tool for paying their immediate health expenses rather than a retirement savings vehicle. That may be the appropriate way to use these accounts, especially early in an employee’s career when finances are tight, because there is value in an HSA as a short-term spending account and emergency savings.”
Many employers offer a wide range of account options such as HSA, pre-tax 401(k), Roth 401(k), limited purpose flexible spending account (FSA), basic FSA and so on, and employees are tasked with navigating this complex set of choices when it comes to deciding where to allocate their savings. Roughly a quarter of those who didn’t enroll in an HSA say they don’t have enough money to contribute to one at this time, while nearly two-thirds of employees who did enroll (63 percent) say they put aside what they can afford each month. Savings to an HSA may be limited by an employee’s financial position or may be a result of prioritizing contributions to any one of the aforementioned accounts. Portals integrated with financial planning tools can help employees make strategic decisions on where to best save their money based on their unique financial situation.
Even financially adept employees have trouble deciding where to save and how to spend, e.g., only 22 percent of these employees first maximize their 401(k) contributions up to their company’s match before contributing to their HSA — a common strategy recommended by financial experts. Further, only one in four employees contribute to their HSA before their 401(k) plan when they don’t have a matching employer contribution, also a recommended strategy. In addition, those who opt for medical FSAs often leave money on the table or scramble to spend the funding before year-end. Although 69 percent of FSA enrollees reviewed their previous health care expenses to determine their contribution, many employees are still losing money when opting into FSAs, for example:
* 48 percent of employees say they could have put aside more money.
* 36 percent often spend frantically at year-end to use all of the money in their account.
* 32 percent find it hard to spend all of the money in their account by year-end.
Employees look for excellent customer service and personalized online tools to help decision making. Employees’ need for help on deciding how best to use and invest in their health accounts presents a significant opportunity for employers to drive engagement and improve employee understanding of the benefits of an HSA.
Survey respondents say they review their HSA account information frequently; approximately 40 percent review it monthly and one-third review it quarterly. Nearly half (44 percent) of employees surveyed say they value quality customer service as the most important feature of an account provider, while online tools and mobile apps were ranked second (22 percent). These responses suggest employers have a great opportunity to engage employees and enable them to make good “save versus spend” decisions by providing online tools that offer personalization and decision support on the HSA account portal.
They can also help employees better manage HSAs by offering delivery platforms that are integrated with financial wellbeing programs, e.g., 61 percent of employees look for online tools or mobile apps to help them manage their health savings investment—a valuable insight as they weigh health savings against competing financial priorities.
“Employees are looking for the best way to manage their health savings and want to understand the trade-offs between saving and spending,” said Speier. “Since employees visit their HSA portal frequently to view and manage their health savings accounts, employers can capitalize on this opportunity to catch their attention by offering tools on the portal—such as retirement savings calculators and health care price transparency services—to help them understand and weigh the benefits between saving, spending or investing the funds in their account.”
About the survey. The Willis Towers Watson 2018 Health Accounts Employee Attitudes Survey measured the attitudes of over 2,155 full-time employees from private sector companies in the U.S. The survey was conducted during the months of March and April 2018. Respondent demographics in age included baby boomer (25 percent), Generation X (39 percent) and Generation Y (36 percent). Identified job verticals ranged from Energy and Utilities, Financial Services, General Services, Health Care, IT and Telecom, Manufacturing, Public Sector and Education, and Wholesale and Retail industries.
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