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Holistic Planning, Financial Wellness Could Help Propel HSA Industry

Industry Trends and Research

While contributions to health savings accounts (HSAs) are still negligible compared with 401(k) plans, a new report suggests that the industry is expected to evolve during the next several years. 

Employers’ focus on financial wellness and the increased involvement of retirement providers (recordkeepers, advisors and consultants, etc.) is growing awareness of these benefits and framing HSAs in a longer-term, more holistic context, according to findings in the Cerulli Edge—U.S. Retirement Edition, 3Q 2020 issue. 

In fact, 43% of defined contribution plan recordkeepers participated in the HSA market as of 2019, up from 21% just two years prior. And of the 57% not yet participating, 58% of respondents indicated that they are considering entering this market. Cerulli believes this trend of increased HSA involvement will continue.

The report notes, for example, how in 2018 Ascensus pushed deeper into the territory of health benefit administration through the acquisition of Chard Snyder and later HR Simplified. In 2019, Voya announced its new suite of health accounts, partnering with WEX Health for certain administrative services. 

In addition, more participants are now able to log on to a single website or mobile app and review their retirement and HSA information in one place, the report notes. Cerulli suggests that these provider partnerships are more likely to focus on comprehensive education and the use of HSAs as a long-term savings vehicle, especially when these firms are less reliant on net interest income from cash deposits and/or fees from debit card transactions.

What’s Next for HSAs?

As to what’s next for HSAs, other than integrated administration, the answer seems to be integrated account management, according to the report. “Going forward, the industry will likely feature more nuanced and targeted communications, a streamlined user experience, expanded use of investments, and a prominent role for retirement providers to provide intensive education on the topic of HSAs,” notes Anastasia Krymkowski, associate director at Cerulli.

The report observes that Orion recently partnered with HealthSavings Administrators to include HSAs on its portfolio management dashboard. And in January 2020, Fidelity announced that broker/dealers, banks and registered investment advisors on the firm’s custody platform will be able to manage HSA investments for their clients.

And even though retirement advisors and financial planners  generally acknowledge the triple tax-advantaged nature of these accounts, many investors remain in the dark, says Krymkowski. To take full advantage of the account means investing those dollars, and yet less than one-quarter of total HSA assets (and an even smaller percentage of accounts) are invested, the report notes. 

Moreover, while a slight majority of participants with investable assets exceeding $2 million treat their HSA as a retirement savings vehicle, only one-third of respondents with $500,000 to $2 million (i.e., solidly “mass affluent”) do the same. Cerulli suggests that more participants in this demographic could benefit from conversations about taking a long-term view of health savings.

“Without various nudges to invest—like the ERISA-covered retirement space has established through Qualified Default Investment Alternatives—these assets tend to sit in cash,” Cerulli observes. 

As such, communication is key. Employers and financial services providers should discuss HSAs in the context of emergency savings and retirement planning, not just health care elections, during annual enrollment. 

“The most effective campaigns will adapt to meet plan members at each stage of the process—whether recognizing the value of an HSA and opening an account, funding to meet the deductible, accumulating assets, or investing for the long term,” says Krymkowski.

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