Making HSAs Relevant to Millennials

Transcription

1 Making HSAs Relevant to Millennials AUGUST 2016 With decades ahead until retirement, Millennials stand to gain the most from investing in a health savings account (HSA). But research shows they lag behind other generations in understanding and leveraging the long-term benefits of HSAs. In early 2016, HealthSavings Administrators and HSA Coach partnered to survey HealthSavings accountholders. In analyzing the data, insights surfaced about how Millennials view and use HSAs. Read on for 5 quick insights, as well as 5 tips for presenting the benefits of HSAs to Millennials. AUGUST 2016 MAKING HSAs RELEVANT TO MILLENNIALS 1

2 With decades to prepare, it would seem this generation should have a relatively low financial stress level. Not so. MONEY ON THEIR MINDS According to the U.S. Census Bureau, Millennials have officially replaced Baby Boomers as the largest living generation. With 30 years or more until retirement, members of this generation have ample time to grow a substantial nest egg and fund their golden years. With decades to prepare, allowing compound interest to work its investment magic, it would seem this generation should have a relatively low financial stress level. Not so. Instead, Millennials are increasingly concerned about their financial futures. PriceWaterhouseCoopers 2016 Employee Financial Wellness Survey attributes the generation s financial stress to student loan debt, more immediate financial priorities, and risky financial decisions, among other factors. Add to that an unemployment rate of 12.8 percent*, well above the national average. Whatever the cause(s), the result is a generation more concerned about its financial future than its counterparts. And for good reason. A recent study from HealthView Services estimates that a 45-year-old couple will pay $592,000 in total medical costs during retirement. Considering even the oldest Millennials are still 10 years behind that, their burden will certainly be even greater. It s critical to ensure Millennials are fully aware of all of the financial tools in their financial wellness toolbox, including, and perhaps especially, HSAs. 12.8% Unemployment rate + Student loan debt + Immediate financial priorities * Source: Generation Opportunity s Millennial Jobs Report, March 2016, U-6 unemployment rate (includes all unemployed as well as those marginally attached to the labor force and those employed part-time for economic reasons) AUGUST 2016 MAKING HSAs RELEVANT TO MILLENNIALS 1

3 DEVIL S IN THE DETAILS HealthSavings has specialized in health savings accounts since President Bush signed the Medicare Prescription Drug Improvement and Modernization Act of 2003 (P.L ). For over a decade, the organization has been educating consumers and answering questions about HSAs. President and cofounder Patrick Jarrett feels strongly that the benefits of HSAs far outweigh the perceived burden of navigating the complexities. HSAs are universally underutilized, largely due to misconceptions and a lack of information, Jarrett said. But the data show we have a real opportunity to educate Millennials, in particular, on the long-term benefits HSAs can provide. HSA Coach Founder/CEO Aaron Benway agrees, which is why he s created a suite of personalized tools and resources to help accountholders understand HSA rules and best practices. HSA account rules and limits are confusing to even the most knowledgeable participant, Benway said. But with the right mix of tools, resources, and engagement, anyone, especially Millennials, can really value from HSAs. An advisor to both HealthSavings and HSA Coach, Roy Ramthun led the U.S. Treasury Department s implementation of health savings accounts starting in Ramthun worries that Millennials don t leverage HSAs to their fullest extent, speculating that a lack of knowledge and competing financial priorities are to blame. Ramthun says it s important to include HSAs among all of Millennials savings options including 401k, 403b and IRA plans. The data show we have a real opportunity to educate Millennials, in particular, on the long-term benefits HSAs can provide. PAT JARRETT, PRESIDENT AUGUST 2016 MAKING HSAs RELEVANT TO MILLENNIALS 2

4 MILLENNIALS AND HSAs: TOP 5 INSIGHTS So how do Millennials view and use HSAs? Based on the survey, here s what we found: 83.3% OF MILLENNIALS are likely to contribute 1to their HSA 4 percentage points higher than the average response. 83.3% They re likely to contribute. The good news is that once Millennials enroll in an HSA, they re likely to contribute. In fact, they re slightly more likely to contribute than those in other generations. The survey data also revealed that more than half enrolled in their high deductible health plan (HDHP) to gain access to an HSA or to receive their employer s HSA contribution % But they re 17.1% LESS LIKELY to use their HSA primarily to save for the future. They re less likely to save HSA funds for the future. Millennials seem to focus less on using their HSA as a long-term savings vehicle. A 2016 report released by think tank Financial Finesse might shed some light onto why, revealing that Millennials were the only generation to make short-term goals, like getting out of debt, their top financial priority. Not surprisingly, the report also revealed insufficient retirement savings among the generation s top vulnerabilities. 3 1/4 OF MILLENNIALS 2X the percentage of those in other generations didn t know their HSA funds could be invested. They re less aware they can invest. Short-term focus isn t the only culprit, though. It seems Millennials lack HSA knowledge other generations seem to have. For example, fewer knew that their HSA funds could be invested. Given their longer time horizon, they could benefit even more. 4 Even those Millennials who did know they could invest HSA funds are a bit more RISK-AVERSE. HAVE CONCERNS ABOUT INVESTING HSA FUNDS: 11.1% OTHERS 18.4% MILLENNIALS They re a little more wary of investing. Even Millennials who did know they could invest their HSA funds were a bit more concerned than their counterparts about investing particularly marked stability and the potential of losing money. 5 BUT MILLENNIALS ARE OPEN TO ADVICE. Millennials are 1.7 times more interested in using a financial advisor than the average respondent. MILLENNIALS: 28.5% AVERAGE: 16.6% Also, more Millennials said they ve asked family, friends, and coworkers for advice on healthcare expenses. MILLENNIALS: 11.6% AVERAGE: 6.9% They want input. Millennials grew up with social media and online shopping, complete with access to composite ratings and customer feedback. It s no wonder Millennials are open to advice, especially when it comes to their money. Source: 2016 Health Savings Survey. Conducted by HealthSavings Administrators and HSA Coach in Q1/Q Sent to 24,800 HSA accountholders with a 9% response rate. AUGUST 2016 MAKING HSAs RELEVANT TO MILLENNIALS 3

5 OR * OR 5 TIPS FOR MAKING HSAs RELEVANT TO MILLENNIALS In short, many Millennials are in the financial wellness game, but they re not accessing the HSA s full value. Here are some tips for tailoring the HSA message in a way we think might resonate: Paint a picture. HSAs are still relatively new, so members of any generation could benefit from a crash course on how they work. Details like who s eligible and how to enroll are important, but so is the rest of the story. HSAs are truly unique in many ways, Ramthun said, which can make it tough to sort out all of the details. But those very differentiators that create a bit of complexity at first are the same differentiators that set HSAs apart as a flexible, unique savings tool. To help Millennials in particular get over the learning curve, Benway recommends using visuals to explain at-a-glance how HSAs work Contributions are TAX DEDUCTIBLE Earnings and interest grow TAX DEFERRED For example, an infographic like the one above can quickly illustrate how HSAs provide major tax savings (essentially a 25 percent rebate on eligible medical expenses, depending on your tax bracket). Download these free infographics at HealthSavings.com How an HSA Works Funds go into an individual account TAX-DEDUCTIBLE Take your prescription to the pharmacy and present your insurance ID card. Choose the best doctor either in-network or out-of-network. Funds ACCUMULATE and carry over from year-to-year PHARMACEUTICAL MEDICAL 1 2 The Pharmacy will confirm your insurance coverage and charge you only the discounted rate. 3 Pay the provider by either: TAX Use your HSA funds (debit card or transfer investment funds to your personal account) Withdrawals 1 for eligible medical expenses are TAX FREE 4 Paying OUT-OF-POCKET and keep money in your HSA investments. 2 Visit the hospital, lab, doctor s office or imaging area. No copay is required (before deductible some plans require copay after deductible). An Explanation of Benefits Present your (EOB) will arrive in your mail insurance card. to explain what s covered. 5 (You must save your receipts to REIMBURSE yourself tax-free in the future) The provider will send you a bill for the amount not covered. *TIP: Confirm the bill matches your EOB 6 Pay the provider by either: TAX Use your HSA funds (debit card or transfer investment funds to your personal account) HealthSavings VANGUARD INVESTMENT benefits 22 FUNDS VANGUARD FUND 1 VANGUARD FUND 2 VANGUARD FUND 3 VANGUARD FUND 4 NO-LOAD MUTUAL FUNDS Paying OUT-OF-POCKET and keep money in your HSA investments. (You must save your receipts to REIMBURSE yourself tax-free in the future) * Refer to IRS Publication 502 for complete list of eligible expenses. We offer a total of 22 Vanguard Funds. 12 of the 22 Vanguard funds are ADMIRAL SHARES. All of our members have access to these shares which have lower expense ratios and the potential for better returns. While invested, your money remains available for your use, or it can grow tax-deferred for future use. Highlight the unique nowor-later nature of HSAs. Research shows that Millennials are simultaneously focused on immediate financial priorities and concerned about their financial futures. The PriceWaterhouseCoopers report revealed that 14 percent of Millennials took a hardship withdrawal from their retirement savings in the last year, indicating that they want to save for the future, but often prioritize immediate expenses. HSAs offer unique flexibility in that their funds can be used for both short- and long-term, as needed. And since most of us can t predict our future health, it s helpful that HSAs allow for worry-free budgeting. So an accountholder could access their funds to cover a medical emergency one year, and sock dollars away during a healthy year to prepare for future expenses near- or long-term. FIRST-DOLLAR INVESTING in Vanguard mutual funds You can invest in as many Vanguard funds as you would like. All funds are No-Load Mutual Funds: the shares are sold without commissions or additional sales charges. Vanguard funds utilize a multi-manager approach to investing to provide greater diversification within each portfolio. Vanguard is a registered trademark of Vanguard Group, Inc. Securities offered through The Vanguard Group, Member NASD SIPC. Security products: Not insured by FDIC nor any Federal Government Agency; May Lose Value; Not a Deposit of or Guaranteed by the Bank or any Bank Affiliate. FIRST DOLLAR Illustrate the longterm impact. The annual contribution limits mandated by the Federal government are relatively low, creating a low-dose savings option many Millennials can digest. On the flipside, those same limits might make it difficult to conceptualize the potential return over time, especially when funds are invested. However, Benway warns against relying on benefit selection tools to tell the HSA story. Although these tools can help individuals select appropriate benefits for their situations, we ve found that they don t offer the specificity necessary to adequately position the benefits of HSAs, he said. They re not personalized enough to illustrate the advantages. Instead, Jarrett suggests providing a realistic example of how those manageable contributions can grow, even despite unforeseen, necessary withdrawals. For example, according to the Employee Benefit Research Institute (EBRI), assuming a 5 percent rate of return, a 30-year HSA accountholder could save up to $313,000. Download the HSA Coach app to use the Future Value Calculator. AUGUST 2016 MAKING HSAs RELEVANT TO MILLENNIALS 4

6 5 TIPS FOR MAKING HSAs RELEVANT TO MILLENNIALS 4 5Encourage Tell the story differently. During most employee benefits discussions, HSAs are slotted right alongside health insurance options. The logic is sound: HSA eligibility revolves around qualified health plans. But pairing HDHPs and HSAs places the focus squarely on health spending rather than health savings, which contributes to the misconception that HSAs are nothing more than FSAs with a few added perks. Jarrett encourages brokers, planners, and employers to tell the story differently to get accountholders to act differently. The S is for savings, Jarrett said. When you tell the story differently and position the HSA as a savings tool specifically a retirement savings tool peoples behaviors change. HealthSavings has been telling its accountholders this version of the story for years, and encourages a long-term perspective by offering benefits like first-dollar investing. The result? A greater contribution to investments. On average, HSA accountholders allocate 85 percent of their funds to cash and 15 percent to investments. By comparison, HealthSavings accountholders put 13 percent in cash and invest 87 percent of their money. Just a slight shift in perspective goes a long way in encouraging people to think long-term. them to take action. Millennials grew up figuring things out on their own. Given the right tools, they ll reach expert level before their counterparts even log in. Millennials are hands on, Benway said. They are willing and able to navigate complexity if they have access to the right resources, Benway said. Those resources should include options that let Millennials explore and learn on their own, like savings scenarios calculators and apps. To close the knowledge gap, Ramthun said, consider offering tools, resources, and information throughout the year not just during enrollment. Ramthun also points out it s important to meet Millennials where they are by communicating on social media and in mobile-friendly formats. In many ways, HSAs are a perfect fit for Millennials. Providing the right information in the right formats, and tailoring the message to address Millennials unique needs, will bridge the knowledge gap and help Millennials tap into the full potential HSAs offer. AUGUST 2016 MAKING HSAs RELEVANT TO MILLENNIALS 5

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