Paying for health care and saving for future needs are pressing issues for employees, speakers noted on a panel at P&I's West Coast Defined Contribution Conference that explored the “push-pull” between health savings accounts and defined contribution plans.
But HSAs, established in 2003 so that individuals enrolled in high-deductible health plans could receive tax-preferred treatment of money saved for health-care expenses, shouldn't be viewed as competition for retirement savings, panelists said. Strong savers in defined contribution plans also tend to be strong savers in HSAs, they noted.
“It's not two separate decisions; they're connected in every way,'' said Alison Borland, senior vice president of strategy and solutions at Aon Hewitt.
Nearly a quarter of employees with a defined contribution account who opened an HSA in 2013 increased their DC deferral in 2014, said Eric Dowley, senior vice president, Fidelity Investments.
Moreover, with health-care costs in retirement estimated to be $245,000 for a couple, an HSA can be an important vehicle for meeting that need, he said.
There is “a ton of opportunity to get people to start looking at (HSAs) as a retirement vehicle,” he noted.
Providence Health & Services, Renton, Wash., the nation's third-largest not-for-profit health system, implemented its HSA in 2009, and took the program systemwide in 2013 when it eliminated its PPO health plan for most employees, said panelist Rebecca Brown, senior director, retirement and system investments.
Today, Providence has some 14,000 HSA accounts with an average balance of $1,817. About 400 of those participants have built enough of a balance and have chosen to invest their HSA accounts, with an average investment balance of $7,008.
In the coming year, Providence plans to simplify its fund lineup, aiming to reduce fees, and step up communication, Ms. Brown said.
Communicating what's described as the triple-tax advantages of an HSA can be tricky, panelists agreed. Funded with pre-tax dollars, the individual's account grows tax-free. Withdrawals aren't taxed, either. That's a powerful advantage compared with a 401(k )plan or a Roth IRA, they noted.
Keeping it simple is key, said Jody Dietel, chief compliance officer at WageWorks, which administers and operates consumer-directed benefit programs including HSAs. “Let's not scare people, let's make it easier.”
But know your audience, panelists agreed.
The triple-tax advantage “really spoke” to engineers at Synopsys, where the average salary is $145,000, said panelist Kerstin Aiello, the software company's benefits director.
“They really embraced it with their own spreadsheets,” she said.