Health Savings Accounts or HSAs – the popular tax-advantaged savings accounts designed to help employees with high-deductible health insurance plans (HDHPs) pay for out-of-pocket medical expenses — offer a number of benefits for all employees, but especially younger workers.
Pairing an HSA with an HDHP is an extremely powerful combination that provides employees of all ages with greater flexibility and control over their healthcare spending, along with substantial tax advantages and other benefits.
The greatest benefit for the millennial generation is an HSA’s “triple tax savings” combined with how time can amplify those savings to grow an individual’s account.
Typically, younger employees are healthier and less likely to have to tap their HSA to pay for medical expenses compared to their older counterparts. But that doesn’t mean that millennials shouldn’t be contributing to their HSAs. As we have seen with the recent pandemic, HSAs can be a great tool for health savings if unfortunate circumstances and illnesses happen.
Now, more than ever, there’s a strong argument that millennials need to be contributing up to their maximum annual limit – if they are able – in order to best take advantage of all their HSA offers.
With an HSA, funds can be contributed pretax, grow tax-free (including when invested) and be withdrawn tax-free if used for qualified medical expenses — and withdrawn for any purpose after paying then-current income tax when turning 65. These tax advantages and investment opportunities make HSAs an ideal vehicle for millennials to accumulate wealth in the longer term.
In fact, a 30-year-old can accumulate more than $500,000 assuming a 6% rate of return until age 65, family health coverage and continued contributions to their account each year.
Even in uncertain times, like the world we currently find ourselves navigating, HSAs can be a solid investment and long-term financial tool for millennials.
So, what might be keeping millennials and other younger workers from taking the plunge with HSAs? There are four key misconceptions that come up most often when discussing health savings accounts with younger employees.
The first misconception is that HSAs are the same as flexible spending accounts (FSAs) in that any funds not spent at the end of the calendar year or grace period are lost.
This isn’t true, because HSAs are owned by the employee and able to be rolled over indefinitely without penalty. An employee’s HSA funds remain the property of the employee regardless of whether the account is used or not, or even if the employee changes jobs, leaves their employer or retires.
The second misconception is that HSAs can only be used to pay for doctor and hospital visits. That’s simply not the case. The fact is, HSAs can be used to pay for a wide variety of healthcare expenses, from medical, dental and vision services, to prescription drugs and many other expenses. The U.S. Internal Revenue Services (IRS) publishes a comprehensive list of eligible medical expenses that qualify for payment using an HSA — a list that continues to grow and evolve.
The third misconception among employees, and even some human resources staff, is that HSAs are used the same way FSAs are—as spending accounts. But HSAs are capable of much more than that, providing an abundance of opportunity to help toward a path of better financial wellness.
There are typically four types of HSA account holders: non-funders, spenders, savers and investors. Each type of account holder uses their account in different ways, but all have the ability to spend, save invest and build financial wellness through their HSA. That’s why the greatest service that can be provided to employees of all ages is to educate them on all the powerful aspects of HSAs beyond just spending.
And the fourth and final misconception about HSAs is the thought that they simply aren’t designed or intended for millennials — specifically young, healthy workers who sometimes think HSAs are only for older or sick people, or for those who are wealthier and more educated on healthcare.
Nothing could be further from the truth. From their multiple tax advantages, to their portability and investment options, HSAs provide an array of benefits for everyone and should be considered by all employees, not just a certain age or income demographic.
To help break through these misconceptions, a select group of HSA administrators is leveraging technology to democratize HSAs and offering features that make HSAs easier to use while maximizing all the benefits of the account.
Constantly Improving and Evolving
In addition to these misconceptions, some people are reluctant to embrace HSAs because they believe having an HSA requires time-consuming paperwork and effort to manage their account.
They also don’t want to deal with what they perceive to be complex information in order to make the best possible decisions regarding HSAs.
Fortunately, these factors are rapidly becoming non-issues, as new technologies are making HSAs easier, faster and less complicated to open and manage. And as HSAs continue to evolve, they’re not only easier to use, but also more appealing to millennials due to their tech-centric focus.
The most effective HSA administrators are continuing platform development to offer new features and enhance existing ones. HR staff should look for opportunities to streamline processes and obtain better service for their employees, with the help of these leading-edge HSA administrators.
New HSA administration platforms leveraging newer technologies such as artificial technology (AI) help and enhanced user design, eliminate the complex enrollment and paperwork process, while providing employees with real-time information and guidance on the appropriate next steps to take based on their healthcare and financial requirements. In today’s fast-paced world, these automations are just what millennials need to make life easier while taking a more active role in their healthcare.
In addition, benefits and HR professionals are seeking more opportunities to streamline processes and obtain better service for their employees, with the help of trained HSA administrators, while quality administrators help employees navigate new regulatory and tax changes that can benefit them.
HSAs have been around since 2004 with little innovation, but that has changed over the past few years. Now, with forward-looking administrators redesigning their user experience and their solutions, and applying advanced technologies to the HSA enrollment process, management and ongoing use, the HSA industry is in the midst of disruption — and that’s a good thing.
HR staff should look to adopt solutions that leverage these advanced technologies as they can help offload many of the manual and tedious tasks commonly associated with HSA program management. These technologies also simplify and streamline benefits offerings while individualizing and optimizing benefits for employees.
Using the latest technologies will inevitably simplify administration cutting costs for employers and improve the process for employees. It’s a true win-win.
Best Practices for Enrollment
Whether an organization is adding an HSA-compatible HDHP plan option for the first time or wants to grow enrollment of their existing option, helping employees—especially millennials—understand their options and informing them of how the choice might impact them is vital.
To that end, make sure the information about HSAs is being delivered where the employees are. Communicate critical information via email, text or in-person via planned education sessions held over lunch or in break rooms. Millennials might have particular preferences in terms of how they want to be contacted and informed — keep those in mind.
Another good practice is to partner with the right HSA administrator from the beginning. Forward-thinking administrators are embracing technology that can inform, educate and guide employees and make the selection of an HSA plan clearer and easier.
Furthermore, HR and benefits departments should use tools such as chatbots and conversational assistants. With the help of such technologies, benefits professionals can answer employees’ routine questions more quickly and efficiently during chaotic enrollment periods.
At the end of the day, HSAs offer many advantages to both employers and employees, including millennials. Benefits professionals need to embrace better ways of communicating an HSA’s value to all employees. By offering many financial benefits to employees of all ages, an HSA program can dramatically improve employee retention and satisfaction across the board.
For more information
Join training and guidance expert Michelle Coussens for our in-depth workshop, Managing Change in the Workplace: How to Cultivate an Agile Team, live on July 30, then available on-demand.
In this 60-minute workshop, you’ll learn how to use strategic incremental sprints and micro goals to develop adaptable employees. You’ll learn:
- How to identify and rid your workplace of fear-based thinking
- Steps to map and realign roles and responsibilities in real time
- Tools to assess organizational health and status in line with evolving internal and external changes
- Tips to optimize momentum while avoiding excessive stress