There are lessons in positioning and behavioral finance that we “learned” years ago with 401(k)s that might still be holding back the effective utilization of health savings accounts.
I was reminded of that this week by a recent reader comment on a recent NAPA-Net post: “I was in an HSA, then I wasn't, now I'm back in again. At no point in the process was the investment aspect of these accounts ever emphasized to me. I kinda knew it was there, but it didn't stick. And I'm in the financial business. It wasn't until I started reading articles like this that I started investing those dollars,” wrote the reader.
That comment was made in response to a recent NAPA-Net post that highlighted the findings of a white paper by Optum Bank and Empower Retirement—research that focused on the challenges presented by consumer ignorance of health savings accounts (HSAs).
Education was the #1 challenge cited by plan sponsors with HSAs in the 2019 Plan Sponsor Council of America survey—and #2 wasn’t even close. The Optum Bank/Empower survey found that even among consumers who claim to understand HSAs, only a quarter have considered using one as part of their retirement plan.
Now some of that is surely because in many cases the HSA is sold by a benefits broker, rather than a retirement plan advisor. And some of that is doubtless because the HSA choice is only positioned as a health care option in and for the present, which it surely is in many cases. Even when the benefit is explained alongside the 401(k), maximizing HSA’s “triple tax” benefit and the 401(k) match can be a complicated discussion.
But—there are lessons in positioning and behavioral finance that we “learned” years ago with 401(k)s that might still be holding back the effective utilization of health savings accounts.
Here are five:
Emphasize That it’s Not a “Use it or Lose It” Proposition
Probably the most common point of confusion with HSAs is the similarity in function (covering medical expenses) and acronym with flexible spending accounts, or FSAs, a point made in the recent whitepaper. But if people still get a little fuzzy on what can be paid from an FSA, they learned a long time ago that if you don’t use it, you “lose it.” And that remains a concern of those considering going with an HSA.
Maybe There’s a “Fault” in Your Default?
Traditionally the default option with a 401(k) plan was no contribution, but today that default, thanks to automatic enrollment, is to save. When it comes to health benefits, there is also a default, but since the HSA is often the “new” option on the benefits menu—it almost never warrants that consideration.
What’s in a Name?
Consider that health plan enrollment materials generally highlight the deductible, or worse, use the deductible amount in naming the coverage option. Indeed, most HSA professionals still refer to HSA-capable health options as “high deductible health plans”! And isn’t a “high deductible” a bad thing? Remember that once upon a time we called “automatic enrollment” a “negative election.”
How Long is Your Focus?
OK, so we do benefits elections every year, and every year workers are asked to choose their health care option. And then, as the reader commented above, we do it again next year. The good news is, every year we force people to consider/reconsider their health care needs and plans. The bad news is, that tends to make the focus short-term, what you need and will spend this year, rather than thinking ahead, or focusing on the savings accumulation.
How Much is “Enough”?
Most HSA programs provide investment options—but it seems fair to say that most participants aren’t aware of that.[i] The reason is simply that the vast majority of programs set a threshold of $1,000 (or more) to take advantage of those options—and the working assumption in HSA education seems to be that you won’t.
There’s much to teach workers about the (more) effective use of health savings accounts—and maybe a less or two from retirement that can help employers as well.
For more information, check out “What’s Holding Back HSAs?”
[i]Of course you want the accounts to be invested in a liquid asset so that they are readily available for actual, current health care expenses. However, in the 2019 PSCA HSA Survey, the average participant contribution was $2,595, and a median of $2,476. Moreover, asked how many participants were contributing the maximum to these accounts, just 18% of plan sponsors said that 20% or more were—and nearly a quarter (23%) of survey respondents admitted they didn’t know.
