401k plan asset growth has been steady over the last nearly two decades, from $1.7 trillion in 2000 to $5.2 trillion at the end of 2018. Numerous societal, demographic and economic reasons contributed to this growth, but from an advisory perspective, both education and automated investment tools have helped increase assets as well as the number of participants.
A similar trend is now underway with a much smaller and lesser-considered investment option: Health Savings Accounts (HSAs). At the end of 2018, total HSA assets accounted for $53.8 billion, which pales in comparison to 401k plans. However, HSA asset growth has skyrocketed from just $1.7 billion in 2006, and HSA participation is rising as well.
Granted, most plan sponsors and participants currently don’t view HSAs as an investment or retirement option similar to their 401k, but that, too, is changing. Machine learning (ML) and artificial intelligence (AI) are now being used to engage participants in HSA funding by helping them understand HSA tax benefits and embrace it as an investment tool, not just a tax-deferred account for paying medical expenses.
The best part for employers is that the technology does nearly all the heavy lifting while they benefit from their employee contributions steadily and consistently increasing. Since clients will appreciate that the HSA technology will help attract more employees toward lower-premium, high-deductible health plans, employers will also recognize that your firm is offering an attractive employee benefit that helps protect their company’s bottom line. Advisors recommending this new technology will, in turn, deliver long-term value to employers, employees and their firm.
The following are a few additional ways advisors can educate employers about this increasingly popular employee benefit that also yields benefits for their business.
- Make HSA participation painless. Financial institutions offering 401k plans learned long ago that employees, especially younger workers, would only participate if they made it as easy and painless as possible. As a result, automatic payroll deductions and contribution increases were introduced, as well as plan-investment mixes that automatically shifted based on the employee’s age and risk tolerances. HSAs are becoming just as sophisticated and automated. Payroll deductions are a given, but advanced software can also link to an employee’s checking, savings, credit card and health plan and then recommends contribution amounts. This overcomes the employee’s natural preference to do nothing and gradually transforms HSA non-funders into investors.
- Understand participant behaviors. As in the previous example, 401k advisors can explain to employers that the ML and AI capabilities built into HSA technology are rooted in behavioral economics concepts. In short, behavioral economics is the science behind the emotional, irritational and often highly predictable decision making most of us exhibit around financial issues. HSA participants exhibit many such classic, studied behaviors because humans inherently feel like not spending money (saving) is a loss, rather than gain. With technology “nudging” participants toward a rational decision, such as increasing their monthly contribution, participants are offered highly personalized financial guidance which can help them better understand that funding the account is affordable and in the best interest of their long-term financial health.
- Create a positive feedback loop. A positive action such as funding an HSA account yields positive feedback and encouragement from the technology, which sets up a loop that drives lasting behavioral change. When the employee incurs a medical expense, he/she can be prompted which may help them better understand that the payment withdrawal will be tax-free, in addition to the other tax benefits such as pretax contributions, tax-free earnings and interest. As the HSA under-funders progress to investorsthey will continue to be incented as they watch their investment grow over time using the technology.
A healthy financial benefit
HSAs are on the move. No longer relegated to a health-plan afterthought, HSAs are now viewed as a financial safeguard due to increases in health-plan deductibles, co-insurance and other out-of-pocket health spending. Likewise, with these escalating health costs, a tax-sheltered HSA over the long-term isemerging as an essential element of any retirement financial plan.
Engaging more employees with an HSA is a key to protecting them now and in their retirement years. Intuitive, highly interactive and personalized technology along with easy-to-understand education guidance makes it work. By embracing tools that understand how their employees think about money and saving, employers can more quickly and easily engage a larger number of participants and convert more HSA non-funders into investors.
About the author: Itamar Romanini is Chief Revenue Officer at Bend Financial, a Boston-based technology and services company focused on financial wellness solutions.
Itamar Romanini currently oversees the HSAstore.com eCommerce business line at Health-E Commerce.
