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A summary of the articles included in the March 2023 edition:
- Health Savings Accounts and Life-Cycle Saving: Implications For Retirement Preparedness
- a16z, GV back Thatch in Its Effort to Simplify Health Benefits for Startups and Their Employees
- The HSA ‘Deathbed Drawdown’: Making Tax-Efficient Distributions Of Large Balances (When There Isn’t Much Time)
- HSA Balances, Contributions Grew Despite Higher Health Spending
- Mixed Motivations Behind HSAs
- 401(k)s Are Not Enough for Gen Z and Millennials: Why Many Are Choosing HSAs Too
Health Savings Accounts and Life-Cycle Saving: Implications For Retirement Preparedness
A recent TIAA Institute paper has explored the benefits of combining HSAs with other savings vehicles to enhance retirement readiness. The study highlights that HSAs provide powerful tax advantages and flexible distribution opportunities, and can be optimally used alongside defined-contribution retirement plans to improve financial readiness.
The researchers built a life-cycle model that incorporates an HSA, a tax-advantaged defined contribution account, and a liquid taxable account and used machine learning techniques to determine the optimal amount to save and withdraw from each account to maximize retirement preparedness.
a16z, GV back Thatch in Its Effort to Simplify Health Benefits for Startups and Their Employees
When you’re dealing with health issues, worrying about how you’re going to pay for care can be a major additional stressor. This can be compounded when you’re facing major illnesses, such as receiving treatment for cancer or having surgery.
Chris Ellis and Adam Stevenson had the unfortunate experiences of losing parents to cancer at a young age. During those emotionally painful times, they also saw firsthand how difficult it was to manage the process of paying for care. So they teamed up in 2021 to build Thatch, a startup that aims to simplify health payments for employers and employees alike.
Put simply, Thatch says it is “on a mission to help businesses give great healthcare to their employees in under five minutes.” Thatch sits on top of a company’s existing health plan and is designed to make it less stressful for employees to manage their healthcare finances. Its offering includes a tech-enabled HSA, a debit card for all healthcare expenses as well as on-demand access to “experts” who can help resolve billing issues via text.
The HSA ‘Deathbed Drawdown’: Making Tax-Efficient Distributions Of Large Balances (When There Isn’t Much Time)
HSAs feature useful tax advantages that make them a popular savings vehicle. In addition to allowing for tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses (the so-called ‘triple tax benefit’), HSA funds can be invested and allowed to grow for the long term – which has led many people to treat their HSA as a de facto retirement account by saving and investing the funds to be used for healthcare costs in retirement.
One possible outcome of ‘superfunding’ an HSA, however, is that the account owner may not actually use up all of their HSA funds over their lifetime, which can have significant tax consequences. Namely, if the HSA’s beneficiary is anyone other than the owner’s spouse, the account loses its HSA status and the entire account value becomes taxable income to the beneficiary in the year of the original owner’s death.
For advisors who recommend HSA-maximizing strategies, then, it’s important to consider the risks of the account owner being unable to use up their funds and to plan for potential ways to quickly draw down the account in the event the HSA owner will not outlive their HSA funds.
HSA Balances, Contributions Grew Despite Higher Health Spending
Despite increased health care spending in 2021, HSA enrollees ended the year with higher balances in their accounts, according to a new study from the EBRI. The analysis outlines some interesting findings about HSA accounts in the year after the worst of the COVID pandemic. For the report, researchers looked at data from more than 13 million HSA accounts in the U.S.
EBRI officials said the findings were unexpected given the rebound in utilization of health care services in 2021. During the pandemic of 2020, health care spending decreased significantly, as people dropped doctor office visits and preventive care, sometimes because clinics were closed, or because of fears of COVID transmission. Yet when the utilization of care rebounded in 2021, HSA withdrawals to pay for care (called distributions) did not show a matching increase. The study found that out-of-pocket spending increased by more than 10% in 2021, yet the average HSA balance increased the same year, rising from $2,645 at the beginning of the year to $3,902 by the end of the year.
Mixed Motivations Behind HSAs
Health Savings Account (HSA) adoption rebounded in 2022—but few view it as a retirement account.
Enrollment in health savings account (HSA)-eligible health plans and health reimbursement arrangements reached a record high in 2020 with 19% enrolled in such a plan, slipped to 18% in 2021, but climbed back up to 19% in 2022. Enrollment in health plans with high deductibles that were not eligible to be paired with an HSA fell from 15% to 12% between 2020 and 2022, according to the 18th Annual Consumer Engagement in Health Care Survey (CEHCS), published by the EBRI and Greenwald Research.
401(k)s Are Not Enough for Gen Z and Millennials: Why Many Are Choosing HSAs Too
n an attempt to stay on track with their life and savings goals, younger generations are looking for innovative investment opportunities and tactics to save for the future. In this environment, simply offering a retirement savings plan like a 401(k) is not enough to help employees prepare for what’s ahead. Especially when what’s ahead feels so uncertain.
For employers looking to support and retain employees this year, leaders must educate themselves on a wide range of benefit options and make these available to employees. One overlooked, and often misunderstood, financial benefit is the HSA. These tax-advantaged accounts which can help both employees and employers navigate the rising costs of living and health care today and achieve their financial goals in the future. They are also already gaining in popularity with Gen Z and millennial employees.
Around half of Gen Z and millennial workers who are offered an health savings account by their employer are using it to save for future health care costs in retirement, says a survey.