Helping Employees Save Smarter Through HSAs
From rapidly rising inflation, to deferred elective care pushed into 2021, to more people having to pay for COVID-19 care itself, the U.S. healthcare cost crisis is now coming to a head. Nearly half (42%) of U.S. adults said they were concerned they would be unable to pay for needed healthcare services in the next year. This past year, employers saw the highest increase in healthcare costs since 2010 and although our data shows that cost-shifting is off the table for most employers, that doesn’t mean their employees are feeling financial stressors from other areas. According to the Consumer Price Index, prices rose at a 7.5 percent over the past year, the fastest pace of inflation in 40 years, as food, shelter and electricity costs jumped. These expenses, of course, will vary by age, family makeup and lifestyle, but to help employees meet their varying needs, employers will need to incorporate flexibility into their plan designs where ever possible.
We’ve seen plan participants take loans or hardship withdrawals from their 401(k) when faced with a financial emergency (such as an unexpected healthcare expense), but doing so can have a significant impact on an employee’s 401(k) balance when it comes time for them to retire. This issue can be avoided with minor changes in how people save their money. For example, saving in an HSA keeps the money available for unexpected healthcare expenses, saves on taxes and if left unused it will stay with the employee for future needs. However, saving in an HSA is not an option for everyone, especially if it means losing the matching contribution in the 401(k).
One area that employers can help is to enable employees to save money where they need it most. Employees are incented to contribute to their 401(k) to take advantage of the company match. They don’t want to leave money on the table if they decide to contribute to their HSA over their 401(k). However, if an employer opens the 401(k) match calculation to include the HSA contribution, they are providing tremendous benefits to the employee. Adding this financial flexibility to the plan design allows employees to put their savings into a tax advantaged account while continuing to obtain the benefits of the company match and maximize on their savings.
You might be asking yourself: What do other companies think about this? Employers have come to us looking for ways to add flexibility to their programs and help employees manage their costs, they are realizing that this simple change could help some employees avoid missing out on an important benefit.
In times of rising inflation and healthcare costs, employers should consider offering employees options like this to maximize on their savings. But, it’s just as important to educate employees and make sure that they understand how a 401(k)/HSA match can be a key tool in both their short-term and long-term financial security.