Ear to the Ground—What’s Ahead for Health Savings Accounts?

401k, HSA, retirement, savings

Whadda they hear?

It’s hardly news to note that health savings accounts are increasingly popular, a “two birds one stone” play that solves for retirement and that more worrisome spend for many seniors—healthcare.

Thanks in part to recent legislative haggling in the run-up to recent tax reform, HSAs got a major boost in general awareness from the public at large, with many advisors who now advocate prioritizing HSA contributions ahead of 401ks as healthcare open enrollment season rapidly approaches.

Waltham, Massachusetts-based Alegeus witnessed HSAs’ birth and growth from the beginning. Founded in 1995, the consumer-directed healthcare administrator has its roots in flexible spending accounts and the accompanying technology, like FSA debit cards.

“That was our heritage, but we’ve grown and today support more than 40 percent of the industry’s account-based benefit programs,” says Jen Irwin, senior vice president of marketing and strategy for the firm. “That includes FSAs still, HRAS, health savings accounts and other types of programs like commuter programs, dependent care, etc. And, increasingly, wellness and incentive accounts.

“Our platform is really all about engaging consumers and helping them get better value for their healthcare dollars, spend and save their dollars more wisely, help them start to think about not just the current year but the future,” she adds.

Irwin sat with 401(k) Specialist for a comprehensive interview about where HSAs (and Alegeus) are headed next.

Q: With skyrocketing growth in the HSA space, are you hanging on for dear life? How is the firm handling it?

A: Yeah, it’s growing very fast. Some people are reporting the adoption of [HSAs] is growing at a compound annual growth rate (CAGR) of 20 percent or more, and I would say our base is growing at an even higher rate than that.

So, definitely, a lot more interest from different firms, and more and more employers are offering these products to their employees sometimes as the only type of benefit program but often as an emerging offering that’s part of benefit packages.

Consumers, from our perspective, are obviously absorbing greater and greater financial responsibility for healthcare. We see these accounts as really the foundation of how they will get better value for their healthcare dollars.

Q: Why HSAs and why now?

A: It starts with maximizing the tax benefit that is available to them to ensure that any out-of-pocket dollars they’re spending are pre-tax dollars, and then that they’re starting to be more conscious of the long-term requirements for out-of-pocket healthcare costs and saving at an appropriate rate to prepare themselves for those costs. Obviously, we have a way to go before all consumers are doing that effectively.

We’re definitely seeing a lot of traction. You saw the stats in the HSA participant portal, that HSA participants are 38 percent more confident they understand their health insurance coverage and 54 percent more confident in forecasting out-of-pocket healthcare costs.

They’re also more focused on cost and value than their peers. HSA participants are 23 percent more likely to make cost/value-based decisions than the general population.

We’ve put out other research, as well, that looks at how cost- and value-conscious consumers are being in their spending and how disciplined they’re being about healthcare savings. And while, again, we have a way to go, we’re definitely seeing steady progress and improvement along that spectrum.

Q: 401ks and HSAs are compatible products, obviously. What are you doing as a firm to encourage that fluency between the two?

A: Over the past several years, we’ve invested heavily in the engagement capabilities of our platform. Consumer fluency and the need for better engagement as it relates to healthcare and finances is one of the principal drivers for that.

If you look at some of the investments that we are making and will make in the platform going forward that wrap around the account, the account is the vehicle that they use to spend and save, but they need education.

Our research shows us that even among those that are enrolled in an HSA today, only 35 percent can pass a basic fluency quiz that asks them about how their account works.

So, there’s a need for timely education, not just during open enrollment but year-round in terms of what consumers need to know about; not just how they should be saving but how much they should be saving.

And raising their awareness—I found this somewhat eye-opening—research firm Aite Group covers our space. I think they published a number that said there’s $477 billion of consumer, out-of-pocket spending on eligible healthcare expenses.

In the same report, they talked about the volume of dollars that are going through health savings and other tax-advantaged benefit accounts, and I think it only equated to 13 or 14 percent of the total out-of-pocket spend that’s happening.

Even though many consumers are telling us they’re living paycheck to paycheck and can’t afford to save, those same consumers are already spending post-tax dollars on out-of-pocket healthcare costs. They’re essentially leaving that tax savings opportunity on the table. So, I think it just reinforces how important education is.

Q: The opportunity in the HSA space was somewhat validated by your recent acquisition by Vista Equity Partners. Where do you go from here?

A: We’re really excited about this new partnership for our firm, and essentially Vista is just as excited about this market opportunity as we are.

This is really all about allowing us to continue down the path we’re on. You know, same strategy, same goals with expanded capital to be able to continue to innovate the platform and deliver better value to our clients. From our perspective, it’s the best possible outcome for our firm because it’s going to allow us to move faster in the direction that we want to go.

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