H.S.A.: A Healthy Investment

With a recession that continues to mire Americans, 401(k) emergency cash-outs of retirement funds are up.  A Hewitt study reports the following statistics for 2009:

• 7.1% of 401(k) participants took an early withdrawal (hardship and non-hardship withdrawals included).  This is the highest percentage since 2002.

• 25.61% of 401(k) participants have outstanding 401(k) loans

Health as an Investment

Health Savings Accounts are one avenue that an employer and employee can take to protect health and treat it as the long-term asset that it is.  Most benefit plans operate on a short-term, 12-month basis.  However, this timeframe does not fit reality.  Maintaining one’s health is not a short-term, static condition but a longer lifetime investment that must be supported by long-term strategies.  Just like people plan and save money for retirement, people should be planning for their future health.

The Health Savings Account (H.S.A.) presents an alternate solution that fits both the need to save for retirement and save for health services.  At the same time, it provides a practical way to access cash for eligible health expenses without penalties should the need arise.  As an added bonus, it helps employees and employers save much needed money in the way of lowered premiums.

What is a Health Savings Account?

The IRS allows a member to open up a savings account where money can be deposited tax-free and can be used tax-free for eligible medical, dental and vision expenses.  The long-term functionality of the accounts allow unspent funds to roll over year-to-year and, at retirement, the account acts much like a 401(k).

In order to open an H.S.A., a person must be enrolled in a qualified high deductible health plan.  The health plan is stripped of copays such that all non-preventive health expenses (after the carrier discount) are applied to the deductible/out of pocket of the plan.  Deductibles typically start at $1,500 per person and go up as high as $5,000 per person in the fully insured market.  Because more health cost risks are placed on the member, the insurance carrier rewards the member by lowering the premium. 

Investments

Most banks offer an interest bearing health savings account solution for members.  After a threshold of cash is saved (e.g. $2,000), the bank will typically allow the member to invest additional funds into a variety of mutual funds; thus, allowing the member a more aggressive way to accumulate wealth.

The largest barrier that we have seen in keeping organizations from offering a health savings plan are lack of cash flow.

Cash Flow

Who wouldn’t choose a higher deductible with less cost sharing with the insurance carrier if there was money in the bank to cover “what if” expenses in exchange for lower fixed costs (premiums)?  The quagmire for many people is that they don’t have a surplus of cash sitting in the bank to cover “what if” expenses should they arise.  As a result - and with the prudent mindset that the purpose of insurance is to provide coverage for expenses - many people shy away from electing an H.S.A. plan.  Unlike the popular Flexible Spending Accounts (FSA), the employee’s pledged amount to the H.S.A. is not annualized up front by the employer.  For example, if I make a pledge of $1,200 to my H.S.A., only $100 is available the first month of the plan.  However, I could have a $1,200 health expense the first month of the plan.  And therein lays the issue.

Caravus creates cash flow tools that provide upfront cash to help employees overcome this potential shortage.  With this solution in place, employees have the opportunity to elect a H.S.A-eligible plan and are given the option to deposit funds into the Health Savings Account. Sufficient education is required to help employees see how the account provides a dual solution for health care and retirement savings as well as how cash flow tools can be used to provide a safeguard for potential, unexpected, higher cost needs when just beginning to build the account.

In these times, people need flexible options and creative solutions to do double work.  Perhaps with the cash flow situation solved, the employee has a greater comfort level setting cash aside in a Health Savings Account than in a 401(k) because cash is created for both health needs and retirement needs.  With proper tools and education, employees can be supported to create security and independence for themselves well into their futures.