In this age of high-deductible healthcare plans, industry experts say employers and employees should increasingly consider the benefits of health savings accounts as a retiree benefit. HSAs, they say, offer cost-shifting benefits for employers and employees that advisers should be educating clients about.
“Retiree benefits are going through a dramatic change,” says Seth Ravine, chief revenue officer of the Tampa, Fla.-based Acclaris. “Employers are looking for ways to cut costs, and retirees are feeling the brunt of that.”
According to Mercer’s latest data from the Inside Employees' Minds Survey, there is a growing concern about healthcare expenses in retirement. The survey also found most employees between the ages of 35 and 64 place a high value on an employer’s retirement benefits and low healthcare costs, ranking them as the second and third most valued elements of the employment deal, behind base pay.
A high-deductible healthcare plan coupled with an HSA is a way for employers to cut healthcare costs for the company, yet still satisfy employee retirement and healthcare needs, experts say.
“The individual or employee is going to have to take on more control and financial burden than any other previous generation,” Ravine says.
“A high-deductible healthcare plan has short term and long-term gains,” he says, adding that advisers should work with employers to understand the short term and long-term goals.
“Most employers will see the short-term drops of healthcare costs immediately, but you haven’t actually changed the trend of your healthcare liability,” he says. “What HSAs can do long term is, if employees start them early, invest in them early, and learn how to utilize them — including when to draw from HSAs and when it is best to pay out of pocket — now you’re giving real dollars to individuals. At the same time you’re giving yourself as the employer the ability to push more costs onto employees.”
Educating employees about what an HSA is and how it can be used as a tool for meeting healthcare costs in retirement is key, experts say.
“Most Americans are unprepared for healthcare costs in retirement, and an HSA is the best way to save for that,” said Eric Roberts, a consultant at Nyhart Actuary & Employee Benefits, during a recent webcast hosted by the Healthcare Trends Institute.
“If you have already made it into the retiree population and haven’t had the ability to open an HSA, you’re in a tight spot,” says Ravine. “Once you’re on Medicare, you can’t contribute to an HSA anymore, but the next generations have a real chance to utilize HSAs in their retirement.”
Still, employers and employees hold several misconceptions about how an HSA works, indicating a need for adviser help to understand them, including how an HSA differs from an FSA and an HRA.
Employees have a lack of awareness surrounding several HSA features and benefits, says HSA custodian company HealthEquity. For example, for some employees and employers the fact that HSA funds roll over and are not “use it or lose it,” is not common knowledge, the company says.
Many consumers also don’t know that after age 65, you can withdraw money from an HSA for any type of purchase (not just medical expenses) without penalty.
If used for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must pay income tax and a 20% penalty on the non-qualified withdrawal.
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