What’s Holding Back HSAs?

Why, more than 15 years after its introduction, despite “triple tax” advantages and growing concerns about health care expenses in retirement, aren’t there more health savings accounts?

That’s the focus of a new whitepaper, “‘Learning’ Objectives: What’s Holding Back HSAs?”, co-authored by Nevin E. Adams, JD, Chief Communications Officer of the ARA and Jack Towarnicky, Principal Researcher, and sponsored by the Empower Institute.

The white paper points out that while December 2018 marked the 15th anniversary of legislation that created HSAs, many employers still regard the HSA as a new, untested innovation. As a “new” option, most plan sponsors and workers are not well versed in HSA-capable health coverage requirements. Even workers with access to an HSA option often misunderstand the opportunity, confusing it with the “use it or lose it” requirements of the better known and more prevalent health and dependent care flexible spending accounts (FSAs).

Indeed, various industry surveys estimate the costs of retiree health care for an age-65 couple may approach $350,000, yet fewer and fewer employers offer retiree medical coverage or educate workers regarding their need to prepare for those expenses.That estimate is for costs in excess of benefits paid by Medicare – even though Medicare trustees project that Medicare trust fund reserves will be exhausted in less than seven years! Little wonder that health care expenses dominate the retirement preparation concerns of American workers.

However, 60% of respondents to the Plan Sponsor Council of America’s inaugural survey on HSA design and use said that employee education was their dominant concern about this important health care account.

That said, 16 years after its introduction, only about a quarter (26%) of plan sponsors that offer health coverage offer an HSA-capable health option. Furthermore, the paper points out that many of those employers that do offer an HSA-capable health option position it as less valuable than other PPO or HMO coverage options, and suggests that the education challenge also extends to plan sponsors.

This paper outlines both the opportunities and the education challenges that, a decade and a half later, are still holding back HSAs, offering a comparison with the early experiences with 401(k)s – including gaps in access to tax-preferred saving, a greater focus on current versus future needs, savings inertia, and financial and investment illiteracy – and offering design suggestions that can increase the likelihood that workers can succeed in maximizing the value of an HSA – and that employers who offer those programs can cement their role as an employer of choice.

The white paper can be downloaded here.