The accounts are
frequently being used to cover pandemic-related expenses, and employers are
increasingly playing up their benefits to workers
August 25, 2020 By
Emile Hallez
Many
people have become more familiar with their Health Savings Accounts this year,
using the accounts to pay for COVID-19-related health care expenses.
As of June, at least 13% of
people who have HSAs used them for that purpose, according to results of a Charles
Schwab survey conducted
in May and June. Just over three quarters of employers provide HSAs to their
workers, and about 45% of people opt for them, according to that survey.
The account type is more
widely available than ever, and it’s an option that employers are increasingly
considering. According to a
separate survey published earlier this month by Fidelity
Investments, 27% of companies have made changes to their employer-sponsored
health benefits since March, when the pandemic was declared.
Only about 8% of workers
are unaware of HSA options in their plans, Fidelity found.
“Many choose not to opt for
a High Deductible Health Plan, which is a requirement to contribute to an HSA,”
the company stated in an announcement. “Yet, when the HSA is utilized, 89%
report that it has a positive impact on their lives.”
The account type is
distinct from Flexible Spending Accounts, contributions to which expire. HSAs
are most commonly used like checking accounts for health care expenses, though
they are designed to be investment
accounts – a message that providers have been amplifying.
About 52% of employers
explain HSAs to their workers as a retirement savings account, according to an
Aug. 20 report by
the Plan Sponsor Council of America. However, many employers don’t have a grasp
on how HSAs can be used — an area where guidance from retirement plan advisers
can be useful.
“While HSAs have been
around for more than a decade and a half, employers and participants are only
just coming to appreciate their power as an additional way to save for
retirement,” American Retirement Association principal researcher Jack
Towarnicky, said in an announcement. “Employers need continued support in
explaining the unique benefits of HSAs to employees — aligning it with their
retirement savings programs rather than solely as a separate health benefit can
help overcome some of these education barriers.”
Explaining HSA benefits to
workers was employers’ top concern about the accounts this year, according to
PSCA’s report. Tax treatment and contribution limits were among their leading
concerns, the group found.
While employers are
increasingly describing the accounts to their workers as retirement savings
vehicles, only about 4% of companies set up HSAs with the same investment
menus that are available within their 401(k)s, PSCA found.
About 15% of employers said they would like the investment menus to be the
same, but their plan providers often do not provide access to the same
investments in the different account types, according to the report.
In 2019, the average
contribution to HSAs was about $2,600, and the average account balance was just
over $5,600, PSCA found. Of employers that offer such plans, about 84% allow
participants to invest their assets, though 80% require a minimum account
balance of $1,000 before workers can do so. Those figures are based on
responses from 181 employers that offered HSAs in 2019.
One HSA provider,
HealthSavings Administrators, saw a spike in HSA contributions in July.
Although contributions were lower in 2020 leading up to that time, July saw
contributions jump by 24% compared to July 2019, according to an announcement
from the firm. Further, there was a 93% increase in post-tax contributions, due
at least in part to the change in tax-filing deadlines, according to
HealthSavings Administrators.
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