How HSAs Can Help Boost Employee Productivity and Retirement Readiness

Financial stress doesn’t just take a toll on individuals—employers are feeling the pain too.

According to John Hancock’s 6th annual financial stress survey, nearly half of the 3,500 employees surveyed said worries about their personal finances affect their productivity at work. In addition, one of every 20 employees surveyed noted that, in the past six months, they had missed at least one day of work due to financial stress.

What’s causing this hurt? According to the survey, saving for retirement is the most prominent cause of financial anxiety; over half of respondents said they were behind schedule on their retirement savings. Specifically, employees’ top retirement-related financial concern is putting enough funds away to cover the health care costs they’ll incur.

As employees struggle to effectively prepare for retirement, employers are also paying the cost due to reduced productivity and increased employee absences. Luckily, employers have a powerful tool at their disposal to help them address these issues and give their employees peace of mind—health savings accounts (HSAs).

HSAs are medical savings accounts that let account holders save money on current and future health care expenses by taking advantage of HSA tax breaks. From a tax savings perspective, there isn’t a better way to pay for retirement medical costs than an HSA.

That’s because contributed HSA funds are tax-free or tax-deductible, earnings and interest grow tax-free, and withdrawals for qualified medical expenses are tax-free as well. Traditional 401(k)s are taxed upon withdrawal and Roth 401(k)s are taxed upon contribution, so neither can match the ability of an HSA to save account holders money on their health care expenses.

In the John Hancock survey, employees noted that seeing projections of retirement expenses would most motivate them to save for the future. Well, according to HealthView, the average married couple retiring at age 65 should expect to pay over $387,000 in out-of-pocket medical expenses during their lifetimes, and much of that will be incurred in retirement. Contrary to what many people think, Medicare is not free and does not cover all medical costs. This means employees need a robust alternative for paying non-Medicare-covered health care expenses, and HSAs are the best way to do that.

Not only do HSAs have valuable benefits for account holders, they also offer powerful benefits for employers. In order to contribute to an HSA, account holders need to be covered by an HSA-qualified health insurance plan. This presents an opportunity for employers, as HSA-qualified plans typically allow them to save money on health insurance premiums.

In addition, employers can set up their HSA offerings so that when employees contribute to their HSAs via payroll withholding, employers and employees avoid FICA taxes on those contributions. That’s an extra 7.65% back to the employer and the employee with no cost or effort needed on their end.

Finally, the John Hancock survey mentioned the importance of financial wellness programs in easing employee stress and boosting morale. Specifically, 64% of employees said a financial wellness program makes them want to stay with their company, and 56% noted it increases productivity. By empowering employees to grow tax-free medical nest eggs to cover their future health care expenses, HSAs are a vital piece of any financial wellness program.

For employers, implementing an investment-focused HSA solution not only benefits their employees, it affects their own bottom line. HSAs enable employers to save money and boost productivity while empowering employees to invest with confidence as they build toward a happy, healthy future.

James Denison is director of marketing for HealthSavings, one of the country’s original health savings account (HSA) providers. HealthSavings empowers consumer-driven health plan participants to invest in institutional-class funds so they can grow their savings tax-free and meet their financial goals for a happy, healthy future. Denison is passionate about HSAs as a retirement strategy, health care consumerism and medical cost transparency.