As more employees join health savings accounts to offset the rising healthcare costs, benefits managers need to educate them that these same funds can be saved to supplement Medicare during their retirement years — and even as a rainy day account instead.
“We’re starting to see people cut up their HSA card and not use it at the pharmacy or doctor and they will negotiate prices more,” said Eric Remjeske, president of Devenir, who spoke recently at Employee Benefit News’ Benefits Forum & Expo in Boca Raton, Fla.
Instead, some HSA participants are using their personal credit card to earn frequent flyer points and “save those dollars and put them in an investment that is growing in a supplemental retirement plan,” said Remjeske.
“We are seeing that to be a powerful tool for people to consider. Retirement experts are starting to see this as a great parallel to the 401(k) investment,” he added.
There is plenty of money in HSAs that can be used as investments instead of their intended use for deflecting the costs of healthcare expenses from high deductible health plans. That said, only a small percentage of HSA participants invest their funds.
According to John Young, SVP consumerism and strategy at consumer-driven healthcare provider Alegeus, who also presented at the panel, there is an estimated $45 billion in HSA assets. Meanwhile, there is $6.9 billion dedicated to investments and $37.6 billion in deposits, according to research from Devenir. In 2006, total HSA assets were $1.7 billion.
Devenir estimates that HSA assets will reach $53.2 billion next year with $8.8 billion dedicated to investments and $44.4 billion in deposits.
Hop in the sidecar
Instead of using an HSA for medical expenses throughout the year, employees could be urged to use the account for retirement especially for escalating healthcare costs that are not covered by Medicare. Young brought up the theory of a “sidecar HSA” that works alongside a traditional 401(k).
“The sidecar is an idea where you can come into an employer with an IRA and have that coupled with the 401(k) options,” Young said.
“If we find a way to couple the 401(k) investments into an HSA — that is where the sidecar comes in,” Young said. “IRS regulation keeps that separate but connected.”
Young called this “mirroring” when HSA funds can be invested like the funds in a 401(k). “Some employers create a list of investments that are exactly the same as the investments that are in their 401(k). They say to their HSA people, this is the same plan for the same investments, so people are used to those funds.”
If an employer is mirroring its 401(K) plan, the Department of Labor said in October 2016 that this will not compel an ERISA investigation, explained Remjeske. “They said if you’re offering more than one investment option, and the employer isn’t choosing those investment options per se, you’re not triggering ERISA.”
When asked how employers could convince employees, many of whom live paycheck to paycheck, to fork over money initially dedicated to healthcare expenses into a plan for their retirement years, Remjeske suggested that saving for an emergency should be the primary focus.
“Let’s say you have $5,000 in medical expenses and you kept the money in your HSA and you used your credit card, now you have a $5,000 nest egg in case you have an accident,” says Remjeske, “and a rainy day fund as well.”
Young added that executives will have to be proactive with their workforce. “Employers may have to become benevolent despots and say, “I am enrolling you in this plan,” he said.
“This is our future in the next two or three years. These numbers, the people who have been in this, the people who have tipped this industry, they are going to be ready to invest,” Young said. “And this industry has to be ready to help them.”
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