If we’re serious about achieving healthcare reform, it’s time to change our thinking about health savings accounts.
Ever since the HSA was created in the early 2000s, benefit advisers and employers have encouraged employees to set aside funds for future healthcare needs while taking advantage of the now well-known triple tax advantage. It proved to be a solid wealth building strategy, enabling high income earners to increase their net worth. It’s still a valid option for those who can afford to invest in HSAs with no intention of withdrawing funds anytime in the foreseeable future.
The problem is many Americans aren’t wealthy enough to dedicate a portion of their paycheck for some unidentified healthcare need later in life, especially since employers are shifting more of the healthcare cost onto their employees. Often with a limited income, most employees need their money now to pay for health needs as they occur, such as a chronic illness or medical costs associated with their children. A full 66% of HSA account holders withdrew funds in 2017, according to a report published last year from the Employee Benefit Research Institute. While the average amount contributed was $2,843, the average annual amount withdrawn was $1,725.
The EBRI study echoes findings from the 2018 Year-End Devenir HSA Research Report that estimates of the 25 million individual HSA accounts, 24% of total assets were retained in accounts in 2018. What these studies indicate is that emphasizing HSAs as a savings vehicle can discourage spenders from even opening an account. Yet, spenders can derive as much value from HSAs as savers.
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What’s even more compelling is that educated, engaged consumers — who shop for the best price and demand the highest value in their healthcare — can drive market competition and ultimately push costs lower. Meaning, those who are spenders (and who are spending wisely) have the greatest potential to disrupt the healthcare market because they generally have a higher degree of health literacy and are engaged consumers.
So why do we continue to categorize HSAs as savings accounts and design products aimed at savers, when the majority of account holders use them to spend? Because most HSA administrators are banks — publicly owned institutions that are chartered to focus on assets under management.
It’s time to turn the tables on HSAs, and brokers can play an important role.
First, reconsider how the market now operates. For many years, the HSA industry recommended products to employers with an investment clientele in mind. But the market has shifted from savers to spenders. While the majority of early HSA adopters were high-income earners who saw a good investment opportunity, new adoption numbers among this rank are being replaced by workers who need to pay for medical costs today. Therefore employers who desire to provide their employees with the tools they can use to achieve healthier lives, need to know about HSA options designed with spenders in mind.
How do you find these options? By pressure testing your HSA administrators. Probe into whether they really support consumer health literacy by providing multi-channel education opportunities and the tools to drive engagement — and have them demonstrate how they do it.
Don’t just rely on their talk about consumer-driven healthcare. If they don’t pass the pressure test, do some research and find administrators that can prove they’re walking their talk by showing they are aligned with this philosophy and giving spending tools equal weight and presence to investing options.
This could include product features like multiple reimbursement methods to simplify the payment process, point-of-purchase tools that give spenders confidence they’re using their dollars wisely or connecting to employer and partner tools that are focused on a shared objective of helping spenders reduce costs and improve health. Another option is to look at the content they’re providing and how they position spending, such as surfacing tips that help spenders understand when and how to use their dollars efficiently.
The HSA market has shifted. Decades ago, HSAs were designed to serve Wall Street. Today, they need to serve main street, but most HSA products fall short of that mark. Until we stop viewing HSAs through a banking lens and start focusing on the majority of consumers who are looking for the resources to help them best spend their health savings accounts, we’ll continue to lag behind in meeting their needs and miss a tremendous opportunity to disrupt the healthcare market.
