HSAs: The Road Less Traveled
By Philip D. Armstrong, Sr. Market Strategist, Harland Clarke
A great story (or poem) is a time honored tradition in education, inspiration and hope. For example, in Robert Frost’s “The Road Not Taken,” the poet writes:
Two roads diverged in a yellow wood
And sorry I could not travel both…
I took the one less traveled by,
And that has made all the difference.
Unfortunately, we are programmed from birth to follow the well-worn path. Think of all the physical forces in nature – atoms bouncing off you every time you veer off the “well-worn” path. These atoms are your parents, your teachers, your governments, news media, religion, friends, even enemies. Have you ever noticed….it is always very clear to them where the path will lead?
For some, however, occurs a lucky accident. An idea. A unique concept or vision of the future that is different from today. Who wouldn’t want that?
That is how I view the path of the Health Savings Account.
Most people have heard of a Health Savings Account. It sounds good, tax benefits and all. But why should they want one?
HSA Tethers
The Health Savings Account struggles to gain traction. In the 15 years since it was born, the HSA remains an awkward adolescent ($66 billion in assets) compared to its robust older sibling, the 401K ($6 trillion in assets). Employers are not embracing it like the 401K, and employees don’t know why they need one.
The vision – one the American Bankers Association HSA Council strives to support (1) – is to remove the tethers that bind the HSA from helping more Americans. Allow employees or the self-employed – a large and growing Gig Economy – to build the retirement safety net they don’t have.
An Unforeseen Circumstance
Remember the two paths of Robert Frost’s poem? Suddenly, there’s an opening we didn’t see coming. COVID-19 has changed the landscape. It has been a wakeup call, to be clear, for legislatures and government officials to help Americans afford their future healthcare.
As noted by Kevin McKechnie, Executive Director of the American Bankers Association HSA Council, “In just the last 90 days, we’ve seen more change for HSAs than we’ve seen in the last decade.”
On March 27, 2020, the CARES Act was signed into law. It included expanded use of HSAs for over-the-counter medications and, importantly, Tele-Medicine during the COVID-19 crisis.
The next round of stimulus, anticipated in August or September 2020 with the passing of the Personalized Care Act (2), offers great hope for breaking two of the largest links in the chains that are impeding the growth of HSAs.
The High Deductible Health Plan (HDHP)
The bill will eliminate the requirement that one must have an HDHP to open an HSA account, thereby allowing all Americans to open an HSA, much like an IRA.
Penalizing Seniors
Today, the most vulnerable group is not being allowed to “catch up.” The bill will permit contributions to continue after the age of 65. Additionally, those who currently have an HSA and move to Medicare will still have the ability to contribute to their HSA.
Bridge the Knowledge Gap
The vision we at Harland Clarke support is one where HSAs become part of the mortar to pave the way to health and wealth. The final link we need to break is the link of ignorance.
We are eager to help financial institutions bridge this gap through communication and activation programs that drive deposit growth.
Free Up HSA Growth
HSAs are a multi-trillion dollar fuse about to be lit.
The spark will be legislation like the Personalized Care Act. But the match stick is one we already know how to ignite.
If the last great recession taught us anything, consumers will be guarded and tentative unless given a reason to believe. The marketer’s ultimate maxim – Reason to Believe.
The value proposition of the HSA is clear. We need to help Americans experience the compound power of HSA tax relief by incenting them to try.
The financial industry has led the way. Incentives are now almost a given to get consumers’ attention.
It will be no different with this recession. Cash incentives will be a prime motivator.
The HSA industry already has learned the best practice of offering modest matching contributions to spur adoption and acceptance.
Why do you need to consider the use of incentives? Untapped opportunity.
Less than 10 percent of people who have HSAs today meet their annual contribution maximum. Consider the upside in changing this behavior.
The time has come to begin rewarding HSA behavior. Competition will force the hand of Administrators and Custodians.
No doubt, it will take some courage to incentivize HSAs to grow. But those who start down this road less traveled, may learn it makes all the difference.