The Importance of Encouraging Employees to Take Advantage of Health Savings Accounts

Health Savings Accounts (HSAs) have been available for almost 20 years, but the vast majority of employees still do not know how this vital tax-advantaged financial account can help them cover current and future medical expenses. According to Devenir, an HSA investment and research company, there are “nearly 36 million people [with HSAs], holding $116 billion in assets designated for healthcare expenses now and in the future.”¹ The growth in HSA accounts and assets is encouraging news, but it’s not enough. A huge obstacle to adoption is education. According to a 2022 survey conducted by the Employee Benefit Research Institute, “72% of adults spent less than an hour deciding on their health plan during open enrollment.”² Given the number of benefit decisions employees have to make during open enrollment, it is not surprising that employees typically default to the health care plan they had the previous year rather than taking the time to understand how a high deductible health care plan works. To break this cycle, employers need to consider offering education resources throughout the year.

HSA Education Needs to be a Priority for Employers

My Secure Advantage, Inc. (MSA) is a financial well-being organization serving millions of employees across America for over 35 years. MSA Money Coaches have educated thousands of employees on the differences between health care plans and walked through the budget implications of health care plan decisions. MSA also provides monthly streaming events on various personal finance topics, and they survey attendees. In recent surveys, the following trends emerged:

• 71% of respondents said they were not confident in their ability to cover medical expenses when they retire.³
• 57% of respondents said they did not have a health savings account, and 55% said they don’t fully understand the benefits of an HSA.⁴

These findings reinforce that employers have a great opportunity to provide the tools and the education to help their workforce face the challenge of funding their retirement health care expenses. However, MSA’s experience providing financial well-being services has shown that healthcare plan decisions often require education and discernment over much longer timeframes than their open enrollment period. Employers need to provide year-round education resources to ensure that all aspects of an employee’s financial well-being can be addressed.

Consider These Important Points During Education Efforts

Employees may need to do some “savings” prep work in anticipation of transitioning to a high deductible health care plan.

One of the key benefits of an HSA is the ability to roll over and invest unused funds so that they may be used to cover future medical expenses. Ideally, current-year health expenses would be covered out-of-pocket, which means accessing designated savings already set aside versus depleting emergency savings or growing credit card balances. In 2023, individuals had to cover at least $1,500 in medical expenses before insurance coverage kicked in, and families had to cover at least $3,000 (a.k.a. high deductible), according to the IRS. Employees may need financial coaching to help them create a budget and be encouraged to modify spending behaviors so that funds are available for medical expenses. Employers need to make employees aware of coaching resources available through their current benefits program or consider adding and promoting these services.

One of the primary reasons for having an HSA is triple tax savings.

Contributions to HSAs are deducted from paychecks before taxes, lowering taxable income. Funds that are rolled over each year can be invested, and growth is federal-tax-free. When withdrawals are made, these are not taxed if the money is spent on eligible medical expenses. There may be a few states trying to get some tax revenue from HSA contributions or withdrawals, so employees should check with a tax advisor to avoid surprises.

Future healthcare costs are expected to keep rising.

According to the Employee Benefits Research Institute, “some couples could need as much as $383,000 in savings for health care costs during their retirement years.”⁵ When employees see numbers like this, financial insecurity can set in, and this type of stress often leads to a more distracted worker. Increased education efforts can help employees realize that they have important benefits and tools that can help them save more money for future healthcare expenses and their retirement years. Also, the earlier in their career that employees get this education and take action, the easier it is for them to accumulate savings that can make a difference.

Employers Benefit as Well When Employees Open HSA Accounts

It is important to note that there are potential savings an employer can realize when employees make contributions to an HSA. When employers allow employees to make pretax payroll deduction contributions to HSAs, employers benefit through reduced FICA taxes and federal unemployment taxes. Also, if employers choose to contribute money to their employees’ HSAs, these contributions are tax-deductible. Lastly, given the administrative structure of HSA accounts, employers do not need to hire third-party administrators to process claims like with FSAs and HRAs. The bottom line is that HSAs are a valuable tool that can help employees plan for future healthcare expenses while also offering cost-saving opportunities to employers as they try to provide competitive benefit offerings to their workforce.

To learn more about the world-class education resources available through the MSA financial well-being solution, contact us today.

¹ “Devenir Reports HSA Industry Holds $116 Billion as It Approaches 20th Anniversary.” Devenir, Devenir Group, LLC, 21 Sept. 2023, devenir.com/devenir-reports-hsa-industry-holds-116-billion-as-it-approaches-20th-anniversary. Accessed 7 Nov. 2023.

² 2022 Consumer Engagement in Health Care Survey, Employee Benefit Research Institute and Greenwald Research, ebri.org/docs/default-source/cehcs/2022-cehcs-report.pdf. Accessed 7 Nov. 2023.

³ My Secure Advantage, Inc. October 2023. Based on MSA Member self-reported live event data. 3,243 responses.

⁴ My Secure Advantage, Inc. September 2023. Based on MSA Member self-reported live event data. 1,114 responses.

⁵ New Research Finds That Projected Savings Medicare Beneficiaries Need for Health Expenses in …, EBRI, 15 Feb. 2023, ebri.org/docs/default-source/ebri-press-release/pr-1323-savingstargets-15feb23.pdf?sfvrsn=bf55392f_4. Accessed 7 Nov. 2023.

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Information provided in this article is for informational purposes only and is not intended to offer specific personalized investment, financial planning, tax, legal, or accounting advice.  We recommend that you consult an attorney, tax advisor, or accountant regarding your unique circumstances.