At the recent PLANSPONSOR 2021 HSA Review virtual conference, held on October 13, two experts from the consulting industry discussed how pension advisors can deliver value to clients by helping employees get the most out of their health savings accounts (HSAs) and investments, as well as how to partner with providers.
Speakers: Chad Goerner, Senior Vice President and Director of Corporate Retirement at Princeton Financial Partners / RBC Wealth Management; and Carl Hall, Co-Founder and Chief Investment Officer (CIO) at Lodestar Wealth – Chartered Advisors cannot afford to ignore the growing HSA market, especially if they see it as part of their value proposition to provide holistic services to their sponsor and plan member clients.
Below are some highlights of the discussion, which addressed both the challenges and the opportunities that HSA services present to advisers.
Goerner on the prevalence of HSAs at this stage
“We are definitely seeing an expansion of HSAs at a rate that can only be described as rapid, especially compared to other comparable savings programs. This coincides with the growth of high deductible health plans [HDHPs]. I have data in hand that shows that in 2011 about a quarter of health plans in the United States were HDHP, and by 2018 that number had already risen to 40%, and it continues to increase.
“We are now probably somewhere in the stage of over 50% of employers offering HDHP. The question is, from an HSA perspective, are participants actually using this feature? Are they using some of the additional features of HSAs to plan for long-term health care needs?
“The growth of HSAs, keep in mind, doesn’t come because people really like HDHP. There is a whole healthcare ecosystem pushing us in this direction. And that’s a challenge for advisers. Depending on the socio-economic makeup of a business, you may increasingly see the use of an HSA as a traditional vehicle for inbound and outbound money. We are still only seeing the beginning of using the HSA in coordination with a 401 (k) or 403 (b) as an additional retirement savings vehicle. “
Hall on advisor engagement with HSA services
“HSA adoption has been rapid in some client areas, and the counseling community is starting to catch up fairly quickly. If you think of the counseling community in general, as a profession we are always looking for new ways to add value.
“This contrasts, no doubt, with the healthcare sector, which frankly tends to lack transparency and competition. The advisor community is uniquely positioned to add value on the HSA side. We see this market as a fruit at hand in terms of the ability to add value to the traditional services we offer.
“The update on transparency and healthcare weighs in on a lot of this. The ability for counselors to bring in the skills to compare options and make a call to find out what is the best choice for a person – this isn’t as much in healthcare today as it might be , and advisers can bring those skills to the table, especially when you talk about the fiduciary experience we have as an industry.
“If we play our cards right, there is an opportunity to disintermediate the traditional health care market. “
Goerner on HSAs becoming more and more similar to 401 (k) plans
“Seeing HSAs converge to a service model similar to that of a 401 (k) plan is definitely something that could happen. Most Americans today understand why a 401 (k) is potentially important for their retirement. I think our focus as advisors is moving forward – as HSAs accumulate more assets – it will be important for us to also provide the same kind of service model that we would offer on the pension side. .
“Looking back, it is simply impossible for this subject of health care and the subject of payment for health care to diminish in importance. On the one hand, we are experiencing a significant wave of baby boomers who are retiring and having to meet their health care needs. And, on the other hand, we have younger generations that are struggling with the fact that they’re going to have to use things like DC [defined contribution] plans and HSAs to fund their own financial futures on an individual basis outside of traditional pensions.
“Someone who retires in 2021 will spend hundreds of thousands of dollars on health care during retirement. “
Goerner on how his business serves HSAs
“We actually look at HSAs from different angles in terms of our practice. First, we advise several HSA providers on their investment menu structure, and we track investments and things like that. At employer level, we also advise on menu construction for HSAs.
“Additionally, for the part of our practice that focuses on financial planning, we have incorporated HSAs as a specific vehicle into the financial plan to really help clients focus on the need to save for health care. retirement health. “
Hall on how his practice serves HSAs
“For us, it really starts with a very high level of education. We interact less with actual product suppliers than with the Chadian company.
“I’m still a little shocked that today when most people mention that they have an HSA, they’re not even aware that you can invest it. So this is an important tip for listeners: don’t take for granted how much value you can add by answering participants’ top two or three questions. Really, it draws someone’s attention to the fact that you can invest those assets as well.
“I compare the HSA to the Ginsu knife – it just keeps getting better and better. From the tax treatment of these accounts to the flexibility of the HSA that can be renewed from year to year, this is such a powerful savings and investment vehicle. Our real job is to make people understand how capable the HSA can be of pursuing their short and long term savings goals.
“The HSA is also ideal for asset location considerations. You may have an asset class held in one HSA that might not be appropriate elsewhere. You can basically scramble the HSA with tax inefficient asset classes, be it high yield fixed income securities or something else. “
Goerner on the challenges of maintaining HSAs
“HSAs are a great investment vehicle, and it’s a great tool, and at the same time we’ve seen a huge amount of assets come into it. But they also have a very long way to go before they reach the 401 (k) level, both in terms of asset size and in terms of fundamental understanding of employers and employees. This will remain a challenge for advisers.
“Improving awareness will help us better provide the services needed to make HSAs a solution that meets people’s retirement needs and supports their broader financial planning. A good understanding of the use of the HSA can help inform a good strategy on how you approach your clients and new organizations in terms of education and building investment menus for HSA products.
Hall on the challenges of maintaining HSAs
“The average balance size is much smaller than the typical 401 (k). The HSA investment account is tailor-made for a very good robotics strategy. It would be really great if a technological solution could come to market that encompassed the service of HSAs in a way that pension advisors are familiar with.
“Another thing to understand is that there are almost two audiences for this overall discussion: employees who are going to reduce HSA year over year versus those who are investing for the long term. For the first group, the advisor’s deliverable will focus on transparency education, helping people understand that they can pay $ 900 for a CT scan versus $ 3,800 for a CT scan, if they shop. You don’t want to be deaf and ask everyone to inadvertently contribute all of their HSA dollars to an illiquid investment.
“The second group of long-term HSA investors will be served in a different way that is much more aligned with the services an advisor brings to the typical 401 (k) plan client.”