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Why Aren’t Employees Using Their HSAs as a Retirement Vehicle?

Industry Trends and Research

Saving in a health savings account for health care expenses in retirement is one of the most powerful steps employees can take for retirement planning, but most are missing out on this opportunity, according to a new survey and white paper. 

To better understand how employees are preparing for health care in retirement, Optum Bank and Empower Retirement conducted a survey focusing on consumer attitudes and health care saving strategies. 

In the resulting white paper, “HSA prognosis good, but large dose of knowledge needed,” the firms report that consumers are in need of education. This was true even for employees who have an HSA, as many often don’t understand how they work or how contributions can grow. Even among respondents who understand that HSA contributions can be invested in mutual funds or other investments, fewer than half have considered doing so, according to the results. 

Moreover, just one-quarter of those who understand HSAs have considered using one as part of their retirement plan. “That’s a small fraction considering the potential for income tax-free growth on a dedicated HSA fund that can be used income tax-free for qualified expenses in retirement,” the paper notes.

The findings do suggest, however, that a subset of consumers have a firm understanding of HSA advantages. Consumers who have considered using an HSA for retirement cite saving for future health expenses or tax benefits as their reasons. But those who have not considered an HSA as a retirement account largely did not know doing so was an option. 

To that end, the paper cites a survey by the Plan Sponsor Council of America, which found that 87% of plan sponsor respondents offer an HSA-capable health option, but 61% said educating employees was their primary concern regarding HSAs. 

One possibility for the lack of understanding among consumers is that many still confuse HSAs with flexible spending accounts (FSAs), where FSAs are also funded with pre-tax contributions and used to pay qualified medical expenses, but cannot be rolled over toward retirement. Another issue is that consumers often use their HSAs to pay current medical expenses, missing out on the compound growth potential, the Optum-Empower paper notes. “Given the tax-advantaged benefits of an HSA, it often makes more sense to pay today’s medical bills out-of-pocket and let the HSA grow. But here again, consumers don’t always understand the dynamics,” the authors observe. 

What’s more, the findings show that consumers are “poorly informed” on saving for health care. More than a third are “not very or not at all aware” of how much money they will need for health care in retirement and less than a quarter have separate funds set aside for those expenses. 

Employees Want Advice 

When learning about retirement savings, survey respondents said they look to the internet and financial advisors. But when learning about saving for health care expenses, they also look to the internet but would go to their employer or friends and family over a financial advisor, the survey found. 

According to the paper, these preferences make sense considering that employers have been sponsoring workplace health insurance for decades. “Just as workers expect their company to guide them on health insurance decisions, our survey shows that employees expect companies to provide education on HSAs,” the authors write, further noting that this dynamic presents an opportunity for employers to add more value. 

Employer Takeaways

The paper suggests, among other things, that employers can help close this knowledge gap and increase HSA participation by providing more education on how HSAs can be used for health care savings in retirement. 

Among the recommendations are that employers should increase the frequency and focus of their communications so employees realize why they should save in both a 401(k) and an HSA. 

In addition, employers should consider providing a variety of educational materials, including an HSA “how-to” guide, flyers, videos, webinars, emails and group presentations. “And remember to target communications based on age groups—while older employees generally prefer more traditional materials, younger employees are open to receiving information online,” the paper advises.


All comments
David Kupstas
3 years 2 months ago
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.