There is a glaring gap when it comes to awareness of Health Savings Accounts according to data released by Fidelity Investments today, with half of Americans unfamiliar with HSAs and their triple-tax advantage.
Many think HSAs—marking their 20th anniversary of existence—have a “use-it-or-lose-it rule,” which of course is not the case.
Individuals enrolled in high deductible health plans (HDHPs) may be able to open a health savings account (HSA), a tax-advantaged account savers can leverage to pay for qualified medical expenses while also planning for health care costs in retirement, which are estimated at $157,500 for a 65-year-old individual retiring this year according to Fidelity’s 2023 Retiree Health Care Cost Estimate.
Nearly half (46%) of respondents incorrectly believe HSA funds expire at the end of each year
Fidelity’s Fall 2023 Health Care Outlook
Among the many benefits of HSAs are the triple-tax advantage: there are no taxes on contributions, no taxes while money grows in the account, and any withdrawals taken to pay for qualified medical expenses are tax-free as well. Despite these advantages, however, the new study—Fidelity’s Fall 2023 Health Care Outlook—shows many Americans still hold major misconceptions about HSAs. Only half (49%) of survey respondents were familiar with the features of HSAs. This lack of clarity can lead to confusion, with nearly half of respondents incorrectly believing HSA funds expire at the end of each year (46%) and even more being unaware that HSA dollars can be invested (51%).
“It’s important to understand there are no ‘use-it-or-lose-it’ rules in an HSA—your account balance carries year-over-year and can be used now or in the future,” said Ryan Viktorin, vice president and financial consultant at Fidelity. “If you take advantage of an HSA by investing your contributions, your savings could potentially grow over time as well.”
The Fidelity study findings build on other recent studies showing many Americans lack awareness and understanding about HSAs. A Voya study released in this fall found just 27% of respondents grasp that HSAs can be used as investment vehicles, and only 35% understand the primary reason for HSAs: to invest money for healthcare expenses throughout retirement.
One resource that can help employers examine how to approach their HSA benefit offering is Fidelity’s 2023 HSA Key Insights. It illustrates how HSAs can be a powerful recruitment tool for next-gen talent as the workforce undergoes generational shifts.
For example, it reveals that consumers under 45 are more likely than older consumers to take advantage of an HSA offering, and they’re more likely to say that an employer’s HSA contribution is a factor in whether to take a new job.
Annual enrollment season underway
With annual enrollment season in full swing, many Americans are facing the pressure of selecting health benefits for themselves and their families. Encouragingly, eight in 10 Americans rank health benefits among their top priorities for workplace benefits, according to the new study. Of concern, however, is the more than half (56%) who admit the thought of annual enrollment makes them feel “overwhelmed” or “discouraged.”
“With the proper approach, employers and employees can reimagine annual enrollment as an opportunity to build a stronger, healthier future, not as a time of stress,” said Steve Betts, head of Fidelity Health.
Employers are increasingly investing in health-related benefits, and with good reason: according to the study, health tops the list of workplace benefits among employees, followed by retirement and emergency savings.
“People who are confident in their health care decisions are more likely to report better mental health, financial security, and overall satisfaction,” Betts said. “Employers can play an important role, and while high-touch assistance may mean a higher investment, it could also result in greater return in the form of a healthier, happier, and more resilient workforce.”
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