Are HSAs starting to Resemble 401(k)s?

More employers are embracing 401(k)-like features for their Health Savings Account programs

Health savings accounts (HSAs) may still be used more as spending accounts than savings accounts, but the Plan Sponsor Council of America’s (PSCA) 2022 Health Savings Account Survey, sponsored by HSA Bank, finds signs that retirement plans are starting to influence HSA program designs.

Most noticeably, half of large employers – and more than a third of respondents overall – indicate that they do or will position the HSA as part of a retirement savings strategy to employees, according to the PSCA survey, which reported on the 2021 plan-year experience of more than 450 employers.

One key design strategy employed by more than four-in-ten respondents is the use of automatic enrollment – up from 35.3 percent in 2020 and 32.2 percent in 2019. Automatically opening HSAs and enrolling employees dramatically increases the savings rate. This includes more than half of small organizations that automatically open an HSA for employees when they enroll in the HDHP.  Moreover, nearly six-in-ten (57.2 percent) allow rollovers from HSAs for newly hired workers, and nearly two-thirds (61.9 percent) educate and encourage rollovers from other HSAs – moves that support the growth of these savings accounts. 

These programs are the only account that offers a “triple tax” advantage for healthcare expenditures – offering the same pre-tax savings advantage and tax deferral on investment growth as 401(k)s, but also allowing for the tax-free withdrawal of those funds for eligible healthcare expenses.  “The uncertainty of future health care expenses is a significant concern for many,” comments Hattie Greenan, director of research and communications, PSCA.  “HSAs can be an important part of a holistic retirement savings approach to address these concerns.”

Those supportive structures notwithstanding, education remains a significant challenge for the employers that sponsor and look to encourage participation in these programs.  Yet, most employers only provide education about HSAs during open enrollment (61%) or when onboarding employees.

Differences From 401(k) plans

One notable area where the design of most HSA programs differs from 401(k) programs is investable account assets – as HSAs are still largely treated by participants as short-term spending accounts for healthcare.  Just 20 percent of account holders invest their assets in something other than money market funds – where $1,000 minimum cash balance remains a threshold for directed investment by more than 80 percent of responding organizations.

“Incorporating HSA education as part of a broader financial wellness program throughout the year with multiple touch points, perhaps alongside your retirement plan education, would go a long way towards reframing HSAs,” said Ann Brisk, director of strategic partnerships at HSA Bank. “It is encouraging to see data documenting the expansion of these valuable resources across a wide variety of employer sizes and worker populations.  As we enter another open enrollment season, employers should find this benchmarking data a valuable resource.” 

The survey can be accessed at https://www.psca.org/research/HSA/2022report.

Insights on how employers can utilize these survey results to design their benefits plans will be shared in a webinar hosted by PSCA and presented by HSA Bank on Thursday, November 17. Learn more here.