SURVEY SAYS: Feasibility of HSAs for Retirement Savings

Last week, I asked NewsDash readers, “Do you think it is feasible to expect employees to save in health savings accounts (HSAs) for the long term?”

More than half of respondents (57.6%) work in a plan sponsor role. Nearly one quarter (24.2%) are TPAs/recordkeepers/investment managers, 13.6% are advisers/consultants, 3% are attorneys and 1.5% are CPAs.

The largest percentage of respondents (44.9%) said it is not feasible to expect employees to save in health savings accounts (HSAs) for the long term. Twenty-nine percent indicated it is feasible if using the right savings strategy, while 24.6% simply said ‘Yes.” A small percentage (1.4%) selected “Don’t know/no opinion.”

In comments left by readers, many stated that it is only feasible for higher-paid employees and pointed out that the average employee struggles just to save in his retirement plan. Others noted that the young and healthy have a chance of accumulating savings in an HSA, but older or less healthy employees need the money. A few readers pointed out that since HSAs are still tied to high-deductible health plans, most HSA savings are needed to cover those deductibles and other out-of-pocket health expenses. I would note that there are legislative proposals to eliminate this pairing. Editor’s Choice goes to the reader who said: “So many people have enough problem adequately funding their 401(k)/retirement plan, and thinking about inflation of health care costs vs. HSA investment returns, I can’t imagine the HSA as a viable option for most people.”

A big thank you to all who participated in the survey!

Verbatim

Our young team members get an employer contribution to the HSA and typically do not use all of the assets in a year. Overtime they should be able to save quite a bit if they stay healthy. I am not sure it will last into retirement.

If possible, it is best to max out on your HSA contribution regardless the expected amount of expenses.

This works great for higher earning employees. Funny how that works, isn’t it?

The feasibility will depend on the financial circumstances of the employee — probably not feasible for most employees. For employees who can/will invest in an HSA and not use it for current medical expenses, it is a marvelous opportunity to accumulate wealth in the most tax advantaged way possible.

Only younger employees can save for the long term. For more senior employees long-term savings possibility is significantly diluted with health care cost and particularly the excessive burden of prescription costs.

Feasibility is definitely a YES, but likelihood may not be as strong. It all depends on the participants’ health and financial situation. If I had the opportunity, I would fully fund an HSA and not use it to pay for current expenses, so the HSA would be available in retirement. Not everyone has the means (or foresight) to do that.

It’s a constant matter of communication and education to drive home the difference between the HSA and FSA. Can also treat the HSA as insurance, so it’s there if you really need it but best if you don’t use it so can save for the future.

If employees are highly compensated and can afford to pay out of pocket while they’re employed. I know several co-workers who do this – they don’t touch their HSA now. However, I know a lot more people who need the HSA money to pay for their high deductibles now and have little to no money to carry over. I think until health care is truly transparent with pricing that this will continue to be the case. You can’t really “shop around” for health care. It’s just something healthcare industry & employers like to say when it really is impossible. https://www.npr.org/2019/03/13/702975393/why-an-er-visit-can-cost-so-much-even-for-those-with-health-insurance

It may be feasible for a small percentage of workers, but the majority need those savings to pay for the high cost of health care

No this requires too much complex thinking. It’s a rich man’s game. First contributing to HSA will require high deductible plan. Unless you never need care, you need to have money on day one to pay for your meds and any care. You have to set aside that money to pay upcoming deductible which takes lots of discipline. Then in order to save in HSA, you need even additional cash. We want you auto enrolled in 401(k) for retirement because the average person doesn’t have the discipline to enroll AND escalate savings over time. So if auto 401k and HSA payroll deductions take your money, you will likely feel too broke to set aside the funds for medical deductible. Then when you need to pay for medical care, it will bust your budget. Now you could find a way to optimize 401(k), HSA, and funding for medical deductible – but it’s just too complex for the average person. You could even do all the math to show after-tax how much better off you are saving HSA for long term. But it takes too much cash flow organization and discipline for the average person to be motivated enough to understand, let alone stick with it.

Our health plan is HAS-qualified and has a $5,400 out of pocket maximum for families. This group of individuals can defer up to $7,000 (or $8,000) in their HSA. Provided they have the right plan in place they should be able to retain the excess towards retirement savings.

It could work if employees are properly educated on how it works and the benefits of an HSA.

I voted yes, but like most tax deferral schemes, these accounts benefit those who can afford to put money aside from their paychecks. Lower-paid employees might not even be able to defer under 401(k) plans, let alone defer more for HSAs.

Plan Sponsors must allow for continuing messages to keep the “saving” portion of HSA front of mind. A young worker might not be able to heed, but more often there comes a time when building up the HSA for the future is more feasible – and the message needs to be there!

We know that typical employees are living paycheck-to-paycheck, or saving for short- or mid-term goals, such as buying a house. Only the already affluent can afford to use HSAs as true investment vehicles. I could contribute to an HSA for long-term investing, but I don’t. The HSA concept sounds like it can help everyone, but in reality, it’s another tax break for those of us who don’t really need one.

It’s feasible for your highly paid employees. But your highly paid will likely not elect a high deductible plan, because they can afford the premiums for a more robust, low deductible plan. It’s basically another way for lower paid employees to get further and further behind financially. The cost of health care and health insurance has got to get controlled in this country.

An HSA provides three tax advantages: (1) contributions are tax-deductible ( or pre-tax if made through payroll deduction); (2) the gains earned are tax-free; (3) account owners may make tax-free withdrawals for qualified medical expenses. No other savings vehicle gives you those three advantages.

HSAs are only available with high deductible plans, which means that money put away in HSAs will be needed by most people to meet their deductible. I would use an HSA if I could combine it with a medical FSA to meet my current year medical expenses. Since I (and probably most rank and file employees) cannot afford to both pay my deductible AND save for future medical expenses, I do not have an HSA.

If employees are utilizing the HSA correctly, i.e. being a smart consumer to lower medical costs, it is definitely possible to use the HSA as its name implies Savings Account.

Contribution limits combined with high deductibles really do not make this a feasible way to save. Could only work if you don’t have medical expenses because most of the funds go towards deductibles & remaining amounts owed.

It is best where there in an employer contribution. Though this is a great tool, it’s another reflection of the decades-long challenge of helping Americans save.

Saving for future health care expenses in an HSA is just like saving using any vehicle. You have to plan carefully and stick to the plan if you want to save enough for future expenses.

Those who know they will have regular medical costs will probably save just enough to cover their current expense. Those who are usually healthy aren’t likely to lock in their savings to be spent only on potential medical needs. If I was a young and/or healthy person, I would put the money in my 401(k).

I would prefer “Yes and No” for Q2. I believe it requires a certain income level in order to use the HSA as a long term saving vehicle.

It can work but likely won’t be a significant part of retirement savings for an individual.

There are two issues: most people don’t save enough in their HSA, assuming their medical costs to be much less than they actually are. Medical inflation erodes their HSA pot, and investment gains rarely match inflation. We’ve tried communicating both of these issues with limited success.

Based on average pay, high deductible plans and an expectation of saving for retirement there’s little left for daily living, mortgage down-payments and college savings. How can we expect the average worker with stagnant earnings to have above average budgeting techniques and super-savvy financial skills?

Employees will need to understand the value of this type of savings which means education they can understand. Saving for “retirement” is not the same as saving to pay health expenses that occur in retirement.

For the average participant, this is very challenging, especially as they age. It’s a great strategy for the young and unencumbered (who tend to be healthier and don’t have a family to care for) and anyone who has more income to invest (but of course, they will have the means to cover their medical expenses anyway.)

Seems like the vast majority are struggling just to save enough for retirement.

I think HSAs are a feasible method to allow employees to help themselves plan for expenses in retirement. But, just like other methods, not everyone will be able or willing to take full advantage of them. But, even in the short term, there is a tax advantage with them.

One word explains the limited feasibility – education. Where to begin… Many participants spending their entire HSA balance each year don’t understand how this differs from the FSA they have known forever. Once they have been trained on how to use the plan, they begin to save, but still spend from the account. Providers understand this limitation and prey upon the unsuspecting plan sponsors and participants. As a society, we have ignored financial literacy. The skills required to manage an effective HSA are more complex and daunting than managing a 401(k). Regardless of the level of education, the ability to manage an HSA for the long term requires skills our society does not provide to the masses. To make things worse, society labels those with financial literacy skills as elite. HSA users need to think about both liquidity and long-term investments. Considering the limited investment opportunities from a bank as the HSA provider or a high cost set of mutual funds, this is not always a low-cost, easy to access investment, but it is the best the provider, broker or recordkeeper has to offer. Both participants and plan sponsors need to understand these issues. Educating plan sponsors has equal importance. Besides choosing a vendor that will provide a good product, the way a company contribution is designed, especially for those using a stretch match, discourages or at best limits the ability for many participants to max the HSA first. Our plan promotes the flexibility of the HSA as an investment for both short- and long-term needs by encouraging our people to max out the HSA first, then save in the 401(k). We do this by using a seed in the HSA and a profit sharing arrangement rather than a match. That way, saving for the long term first in the 401(k) does not impact the company contribution to the 401(k).

Those employees who are still living paycheck to paycheck need some serious help with budgeting. Employers could make a big difference in their employees lives if they offered this help onsite and at no charge.

The ability to save and invest depends on the health of the employee. Young, healthy employees could potentially save quite a bit if they do not have current medical expenses.

Until it is clearly shown that investing HSA assets will lead to increased revenue for advisers, it will never be “feasible.” Nothing is feasible if the stakeholders aren’t building or selling it.

Today’s health care plans are either very expensive on the front end or have high deductibles and high caps. There are too many things to save for: Save in a 401(k), save to purchase a home or pay it off early, pay off college debt, save for their children’s college, current medical expenses and an emergency fund. Everyone no matter how much you earn or what type of health care plan you have, should be able to have a HSA, but figuring out which buckets should have priority is a concern.

As is often the case, lower-paid employees can’t always save and need those funds now. Higher paid can leave it alone and have a great amount in that bucket by the time they retire. Another variable is how healthy a person is–if one rarely incurs out of pocket expenses, it’s easy not to touch the money.

If people can’t keep their money in a retirement plan already, how is adding another venue for accessible money going to help? The amount of loans/hardships processed shows that people need those assets for things like medical bills and visits.

I answered yes, but it is dependent on each person’s individual situation. If you can save and are relatively healthy and do not need to touch the balance each year, then yes one could conceivably have a nice nest egg for health care. If that is not the case, then no, it is not a feasible plan. One size fits all anything, rarely works across the board.

These are spending accounts, period. Unless one somehow believes that health care costs will not continue to increase, as well as the overall cost shift from ER to EE (think: High Deductible Health Plans), the vast majority of people are lucky to have enough in their HSA to cover in-year medical expenses, forget long-term investing. And given the short-term spending needs, SHOULD these assets be held in securities/funds where at least a medium-term, if not long-term, timeframe is required? The investment angle benefits a tiny minority of participants. YET, this investment angle will remain a topic of discussion, as it will be promoted by the large dominant providers who use it as a sales tool for both their HSA work, and more importantly their other related services. Fidelity is the 800lb gorilla, seeking to cover every possible angle with sponsors and participants…all with the eye towards IRA Rollover capture. So expect that this topic of “investing in HSAs” to be around for a long time…even though it can potentially help a tiny fraction of all participants. Unless of course, independent sources start to call “BS” on this whole topic. But who will do that?

If you never left your house, ate tofu 3x per day and exercised obsessively, you may be able to save modestly via an HSA. But if you are a regular human being, I’d argue the HSA family annual contribution limit of $6,900 is woefully inadequate for this purpose. It feels more like a loose change jar you keep on your counter that you constantly dip into. I consistently take one step forward and two steps back with my account balance.

I believe an individual could save in an HSA for retirement IF they are healthy and do not have a lot of bills now (medical, dental, vision, prescriptions). However, if someone who makes less than $100K/year, has an HSA but also has mounting medical and prescription bills, I can see them using their HSA up quickly because they can’t afford to pay the current day bills.

Saving for retirement is hard enough, but also saving for medical care? Really? OK, reduce the tax rate, get rid of Medicare and we’ll talk

So many people have enough problem adequately funding their 401(k)/retirement plan, and thinking about inflation of health care costs vs. HSA investment returns, I can’t imagine the HSA as a viable option for most people.

In my opinion it is only feasible if the employee starts maxing out an HSA as a young adult. With the caps on the HSA limited to what many deductibles are on a HDHP and with no contribution allowed for a dependent that may be on your plan but eligible for Medicare, the older employee can’t help but spend all they put in. In today’s world you have an alphabet soup of HRA, HSA, FSA, Limited FSA all geared to empower the employee to make better financial health care decisions that in reality only lead to confusion, frustration, depression and ultimately paying more for health care due to the stress of trying to figure it all out.

If the individual starts funding their HSA in their 20’s when they typically have minimal medical expenses, their account will grow over the decades. First step is to get them off their parent’s insurance and on their own as soon as possible.

Why not? I wish my company offered one to its employees.

They can save; however, I’m unsure if the savings will be significant enough to cover the huge medical expenses in retirement. For younger workers, medical expenses in retirement is a huge question mark.

Do I think it is feasible – yes since I know many people doing it. Should anyone expect it – I gave up trying to predict human behavior long ago.

With medical deductibles growing and HSA contribution limits where they are, you cannot even save enough to meet your annual deductible each year. Most people can’t afford to save up to the limits and/or pay that much out of pocket, so they have to use their HSA assets to pay current medical expenses. Lots of improvements could be made in HSA programs as well to help out such as better investment options with lower fees.

Medical expenses are too high to expect people to use these accounts for anything other than for their purpose. I know that every year I always use the entire amount that I allocate to it and wish that I would have put away more.

HSAs are the best tax-advantaged savings vehicle available to employees today. They are an extremely compelling way to save for the long term. However, as we’ve seen over the past 5+ years with the proliferation of financial stress data, the average participant doesn’t even have enough money to cover a new refrigerator or washer and dryer without dipping into their 401(k) or adding more to a credit card. If we can’t help them get their financial house in order (via wellness programs and the like), then how successful are we going to be at getting them to save 15% a year for retirement (and by extension, enough money in an HSA to cover what will be–for a lot of retirees–the biggest expense they face in retirement: health care)? But we’ll keep fighting the good fight.

Higher paid employees may be able to pay for health care expenses out of pocket and set aside money at the same time, but lower paid employees have a hard time with a high deductible plan. The average American has $400 in emergency savings?

For most employees with an HSA, they do not have the means to use this as another long-term savings vehicle. That notion only benefits those who make enough money and have already maxed out their 401(k) plans.

I think that for a small group of employees that saving/investing HSA assets for the long term is feasible, but it’s likely confined to only a fraction of those who are classified as HCEs. I would expect the vast majority to use the HSA as a way to help pay high deductibles on a pre-tax basis. If we agree that most people struggle to adequately save/invest for retirement, it’s going to be a small group that have the cash flow to stash health care funds in an HSA and pay their current medical expenses out of pocket on an after tax basis. To expect anything different would be to fundamentally lack understanding of the financial situation of most employees.

It is definitely a qualified yes as it depends on the company’s contribution to the plan. Relying only on employee contributions will leave little for retirement.

Employees need to understand there are no “use it or lose it” rules with HSAs, so they CAN save their money for the future.

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.