There has been progress among leading-edge advisers and employers to more closely link HSAs and 401(k)s in order to allow employees to use a health savings account to save for healthcare expenses post-retirement.
Eighty percent of Americans have a high concern about healthcare costs in retirement, according to Merrill Lynch, and healthcare is the largest threat to retirement savings and the most important part of a retirement income plan, according to Fidelity, which is why there has been a recent push to more closely link HSAs and 401(k)s, or health and wealth.
HSAs are triple tax-free, Brian Graff, CEO of the American Retirement Association, an Arlington, Va.-based trade group said at a recent event hosted by AFS 401(k) Retirement Services
The fact of linking health and wealth “is a big idea and there is some continued focus on it moving forward,” says Alex Assaley, managing principal of Bethesda, Md.-based financial services advisory company AFS 401(k).
“There is a lot more interest in HSAs by pretty much everybody,” explains Nevin Adams, chief of marketing and communications at the American Retirement Association.
According to the Employee Benefit Research Institute, nearly 30% of employers offered an HSA-eligible health plan in 2015 and that percentage is expected to increase in the future both as a health plan option and as the only health plan option. Most of the growth has been recent as more than four-in-five HSAs have been opened since the beginning on 2011, according to EBRI.
At an event hosted by Assaley’s firm in 2016, he said there was not a lot of traction around the idea of using HSAs to save for healthcare expenses post-retirement. But, now, there is a bigger push.
As HSAs continue to grow, employers, employees and advisers are “understanding there is an ability to accumulate money in the HSA and use that for healthcare or something [employees] want to set aside because they are not sure what their healthcare cost situation in the future is going to be,” Adams explains.
Assaley adds that there has “definitely been a good deal of refinement and evolution in the HSA marketplace [recently], whereby … you are now seeing more companies offering HSAs as a part of their medical and retirement strategy. You are also seeing more employees thinking about HSAs as part of their overall holistic fin wellness program.”
In one-on-one coaching sessions with employees, conversations are becoming more prominent, as advisers help employees, “understand how all employee benefits tie together to make wise financial decisions today, tomorrow and for their retirement,” Assaley says.
“With certainty, there has been a great deal of growth in the marketplace and evolution in how HSAs and 401(k)s are starting to interlock together,” he adds.
Saving for the future
Looking down the road, Assaley expects the linking to continue, especially if proposals to alter the maximum accounts that can be contributed pre-tax to an HSA is tweaked, as has been proposed by legislators on Capitol Hill. Some proposals shared amongst the industry, Assaley says, propose doubling the pre-tax amount.
“If that happens or there is any sort of meaningful increase, then I think you will see an exponential growth in the numbers of HSAs,” he says.
For advisers, the work is not done as they need to help employees better understand how a HSA works and from there help employees understand the benefits of a HSA and the different ways to structure one, Assaley explains.
“Even today, there is a large knowledge gap on what an HSA is, how it works and how someone can use one as part of health and retiree healthcare needs,” he says.