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Health plans that coordinate their health savings account offerings with banks increase the likelihood that individuals establish and contribute to an HSA account, experts say.
"It is important for managed care executives to understand the product they are offering," says Paul Fronstin, director, health research and education program, Employee Benefit Research Institute (EBRI). "HSAs are often offered by health plans. In fact, some plans are buying banks to offer the HSA in a more integrated way with the health plan. HSAs are also being 'advertised' as a way to address healthcare costs in retirement. Given that savings needed for healthcare in retirement are much higher than potential HSA savings [see chart], it will make it harder for managed care executives to sell HSAs as the sole solution to healthcare costs in retirement. However, there are opportunities to work with financial planners to better educate the public and investors."
This chart from EBRI shows the amount of money individuals and families can save in an HSA if they make the maximum contribution, based on how much is rolled over each year.
"Whether true or not, we see the insurance and financial services industries coming together to finance healthcare in complementary ways. Some are threatened by that, but we are kidding ourselves if we believe insurance is the only way to finance healthcare spending," continues Ramthun, who led the U.S. Treasury Department's implementation of HSAs since their creation in 2003, then became the senior health policy advisor to President Bush.
Ramthun believes that if sufficient funds for healthcare are to be accumulated in retirement, HSAs offer a significant vehicle to supplement existing vehicles, such as 401(k) plans and IRAs. "Given that withdrawals from HSAs are tax-free for health and much of long-term care, HSAs offer a critical tax advantage to the other mechanisms."
The automatic rollover of unused funds in HSAs creates asset accumulation that makes people understand how HSAs can be used as a supplement to retirement planning, according to Ramthun. "That changes the focus for many people from 'consumption now' to 'planning for the future,'" he says. "If current consumption is reduced, that will help keep near-term healthcare spending increases down. This in turn, should keep health insurance premiums more affordable for HSA-based products."