Press Release

Employees fail to take advantage of health savings accounts

Lack of contributions means many are missing out on medical and retirement savings opportunities, says Willis Towers Watson

December 12, 2017
| United States

ARLINGTON, VA, December 12, 2017 — Nearly half (43%) of all employees enrolled in health savings accounts (HSAs) in 2017 did not contribute any of their own money to these tax-advantaged accounts, according to the 22nd annual Best Practices in Health Care Employer Survey from leading global advisory, broking and solutions company Willis Towers Watson (NASDAQ: WLTW). With nearly three-quarters of employers (73%) offering their employees a high-deductible health plan tied to an HSA, this is a missed opportunity for many to reduce their out-of-pocket health care costs and potentially save for retirement.

“HSAs are an attractive way for employees to set aside pretax money for qualified medical expenses,” said Trevis Parson, chief actuary, Health and Benefits North America, Willis Towers Watson. “In addition to being able to contribute money to these accounts without paying federal or state taxes on it, money in these accounts grows tax-free and, as long as it is used for qualified medical expenses now or in the future, can be withdrawn tax-free. Employers have an opportunity to do more to help employees understand HSAs’ numerous tax advantages, and encourage more people to use them to save money for medical expenses now and for retirement in the future.”

To encourage greater participation, a majority (62%) of employers that offer HSAs are giving their employees a head start by contributing seed money to these accounts. In 2017, median seed amounts ranged from $300 to $750 for employee-only coverage and $700 to $1,400 for family coverage, depending on whether employers offered automatic seed money or automatic plus “earned” seed money.

“Whether an HSA is appropriate as a retirement savings vehicle should be evaluated on a case-by-case basis, taking into account the total picture of an employee’s income and plans for retirement,” said Parson. “However, if the situation allows it, employees should contribute to their HSAs to realize the tax advantage of funding more immediate qualified medical expenses, which would otherwise have to be paid with after tax income.”

Willis Towers Watson offers employers three tips on how to encourage more employees to contribute their own money to HSAs:

  1. Communicate with employees early and often—and through multiple vehicles—to make sure employees understand the tax advantages and versatility of HSAs.
  2. Seed HSAs with automatic or earned money as further incentive for employees to enroll in high-deductible health plans and contribute their own money to their HSAs.
  3. Provide employees with decision support tools, including such financial well-being tools as Willis Towers Watson’s FiT Age, which help employees estimate tax effects, current and future health care costs, and longevity needs to determine at what age they can achieve financial independence.

According to David Speier, managing director for Benefits Accounts, Willis Towers Watson, “Decision support tools that engage employees at the moment they are selecting and enrolling in benefit plans can be especially helpful in encouraging them to manage their assets wisely.”

The survey also found that HSAs associated with high-deductible health plans are continuing to grow in popularity among employers, with the percentage offering them increasing from 73% today to 83% by 2019. “By encouraging more employees to contribute to HSAs, employers have a unique opportunity to increase employee financial well-being and improve the benefit experience,” said Lindsay Hunter, senior consulting actuary, Health and Group Benefits North America, Willis Towers Watson.

How HSAs work

Employers can contribute to HSAs, but employees own the accounts and the money in them. The entire balance of an HSA account rolls over each year, and the money used to pay qualified medical expenses is always tax-free, even after an employee retires. Once an employee reaches the age of 65, the funds can be used for any qualified purpose but are subject to income tax if purchases are not HSA-eligible. Maximum contributions to HSAs allowed by the IRS from all sources were capped at $3,400 for individual employees and $6,750 for families in 2017; these limits will increase to $3,450 for individual employees and $6,900 for families in 2018 (assuming no changes based on new health care or tax legislation).

About the survey

The annual Willis Towers Watson Best Practices in Health Care Employer Survey was completed by 698 U.S. employers between June and July 2017 and reflects respondents’ 2017 health program decisions and strategies. Respondents collectively employ 11.9 million employees and operate in all major industry sectors. Results provided are based on 555 employers with at least 1,000 employees.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has more than 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

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