The Hire thru Retire Podcast

Health Savings Accounts with Voya's Bill Stuart

• Voya Financial • Episode 15

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If you’ve been listening to our recent episodes you know we’ve been dedicating our conversations to Open Enrollment. We in this industry know that this is a crucial time of year for both employers and participants. As a result, it’s the perfect time to talk about one of the fastest growing employer offerings in the market – Health Savings Accounts (HSAs). Bill Stuart, director, Planning and Business Analysis at Voya, joins Bill and Heather in this episode to help navigate the HSA waters.

 

Bill Harmon is a registered representative of Voya Financial Partners, LLC (member SIPC).

 

The accident insurance claim presented was not the result of coverage offered through the Voya® family of companies and does not constitute an endorsement by any individual. 

 

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Speaker 1:

You're listening to hire through retire, a health and wealth podcast with, for your leaders, bill Harmon, and Heather LaVale tackling the old things from 401ks to HSS and everything in between. We're talking to the best and brightest in the industry to bring you the latest in health, wealth, and investment trends in the workplace. Come along with us on our journey to help all Americans become well-planned well invested and well-protected

Speaker 2:

Well welcome back to hired through retire health and wealth podcast here today, again, with my friend, colleague and cohost to bill Harmon. So great to see you.

Speaker 3:

Hey, great to see you Heather and great to be back in the pod. So why don't we get right down to it? And, you know, and if you've been listening to a recent episodes, you know, we've been dedicating our conversations to open enrollment since it's that time of year. We in the industry note this a crucial time of the year for both employers and their employees. In fact, the perfect time to talk about one of the fastest growing employer offerings in the market health savings accounts,

Speaker 2:

You know, Phil, you hit the nail on the head and lucky for us. We've got our resident HSA expert with us today to help us to navigate these wires, our very own bill Stewart.

Speaker 4:

Thanks so much happy to be here.

Speaker 2:

So bill thrilled to have you here, um, beautiful day in new England, uh, for those of us on the east coast and whenever it's, uh, that, that crisp fall day, it reminds me it's time, almost time for open enrollment. So, um, first let me, let me begin by saying an official welcome to the team for our listeners. Bill joined us back in July when we acquired benefit strategies, LLC, a leading third party administrator of health savings and spending accounts. Phil, could you give our listeners a little background on your role at Voya and how you came to be so passionate about this topic?

Speaker 4:

Sure. Happy to. So my passion started in 2004. I was with a, um, a regional, um, health health carrier, and they brought me into do CDH and I didn't know what CDH was at that point. I learned quickly it was consumer driven health. It's really all about health, FSA, health reimbursement arrangements, or health savings accounts, which had just been approved by Congress at that point. So it's really about the accounts that help people pay their out-of-pocket medical expenses. And I quickly found that I had this talent. I don't know whether it's good or bad that I enjoyed reading IRS notices and the tax law and found that I could take those complex topics and put them into simple, easy to understand, uh, narratives for people. So I've been doing that really since 2004, I joined benefit strategies in 2016. They were actually one of my preferred providers when I was with a, with the insurer. And, uh, they got to know me. I got to know them. I've came a board and was with them a little more than five years. And then we had the voice acquisition. So that's how I became part of the Voya family.

Speaker 3:

I had one of the comment on Heather's comment where when the crisp air in the morning, you think about open enrollment and not pumpkin spice lattes like everyone else, you know what, for those listening to the podcasts, you've come to the right place. This is where you're going to get all the good information. And this is such a good topic. So bill at the risk of preaching to the choir, why are HSA is the topic for today's podcast? Why are they such a powerful tool in building a secure retirement? How do they differ from other health offerings and retirement savings vehicles?

Speaker 4:

It's really a good question, bill. And a lot of people get overwhelmed at open enrollment with what we call the alphabet soup. So health FSA, health reimbursement arrangements, our other health based accounts that can, that can be used to pay out of pocket expenses. The real difference is that those plans have only a limited carry over feature. So essentially you have to use all your money that year or in the following year, but you don't really have an opportunity to build up long-term savings over the course of 20, 30 years. You can use for retirement. They're then different from retirement accounts in that. Well, I know a lot of more sophisticated investors are thinking, you know, do I do a tax deferred, 401k, or do I do a Roth 401k? If they have that option, do I want to be taxed at the beginning and, and take money out eventually tax-free or do I want the tax break early on, but then realize that down at the end, I've got to pay taxes. If I take the money out with health savings accounts, there's no dilemma. We're not worried about GMI tax rates going to be higher or lower in retirement versus during my working years, because the fact is contributions go in pre-tax to a health savings account. They grow tax free. And as long as they're used for qualified expenses on the back end medical dental vision, some premiums, et cetera, they're also tax-free. So they're really a pure tax-free play, no tax friction. There's no other retirement account people could put money into that offers that feature.

Speaker 2:

I know we sometimes hear that being referred to as sort of the triple tax free benefit in HSA and, and you know, certainly a tremendous amount has changed. Um, when we're talking about the availability and adoption of HSA over the last decade. So can you give us a sense of where are we today as an industry? How did we get,

Speaker 4:

Yeah, I'd be happy to, so I rely on a number of reports in the industry. The biggest one is COVID. This is from a company called[inaudible] research and they put out a semi-annual report and it's available to any, any listener who wants to, wants to read it. It's dirty money or D E V E N I r.com. And you can pull down this, this report and it tracks the industry and its growth and the, they just published. Mid-year 2021 version shows that there are more than 31 million health savings accounts with roughly 80 plus billion dollars saved up for future medical expenses. The growth has typically been in the low double digits for both the number of accounts and the total assets. So roughly 31 million accounts. Now that's not 31 million unique people. Some people like me have four accounts. I do that just so I can keep track of some of our competitors, but most people do have only one account, but most of those people also have family members whose expenses can be reimbursed. So we believe there are roughly 50 million to 60 million people today whose expenses can be reimbursed. Tax-free out of that 80 plus billion dollars that that's in health savings accounts.

Speaker 3:

It's good to see that they're growing so much. And, you know, I think we probably came from a time when people really like what you said before. We're thinking of HSA is like, it's almost an FSA. Like it's the use it or lose it as opposed to the point where you said, let it grow, let it grow tax advantage so that you can then have a nice account. Cause one of the things that really caught me by surprise was I saw a stat that the expected out-of-pocket healthcare costs when you're in retirement is now at$300,000 and those are today's dollars. And so the question would be, gosh, if we've done a good job as an industry on identifying how much you need to save in, call it a 401k plan, like your example. I wonder if people were really saying, but I didn't expect to have$300,000 of out-of-pocket healthcare costs. Was I taking that into consideration? What are your comments there as far as just the real need for cumulation rather than treating it like it's an FSA.

Speaker 4:

Yeah. So there, you know, there are two different approaches. As you mentioned, bill, there is, there is spending and they're saving and either one gets the full tax benefit. And we know that roughly half the people who have accounts have a balance of$500 or less, and they are using the account strictly as a spending account. And for them, they're probably not in a financial position to put a whole lot of money away in this account for the future. They have a high deductible health plan. They have expenses, they need the money, they enjoy the tax break immediately. They're using it like a health FSA. And that's great for them because they are enjoying the tax benefit. But there are a lot of people who are able financially to put money aside in this account, longer term, put more money in, roll, more money over a year after year that aren't doing it. And that's the real frustration. We know that roughly 15 to 20% of people have balances of more than$5,000. That's a good sweet spot to begin investing the investment options. Are there in most health savings accounts? Not all, you'll find some that are offered through savings and loans or, or, or smaller financial institutions don't have that feature, but most of them do. And account owners just don't understand that they can invest and they don't know how to do it. We, I think as an industry have not done as good a job as we should have in, in stressing the investment options. Now, the good news is that we are getting a lot better as an industry in terms of educating people. We are building better portfolios for people to invest so that a, a novice investor has a better shot with some self guided, uh, tools rather than just looking at a list of 30 mutual funds and saying, oh my gosh, what do I do? There are also features now that allow people to put their contributions to work immediately. So once they hit a threshold balance of let's say$2,000, they can direct all future contributions to go into specific mutual funds in the proportion that they want. So it's a quick sweep of their contributions, autopilot right into investments. So there are tools which combined with education are really helping. We're showing that even though balances are going up by only low teens, so 13, 14% a year investment dollars are going up by 30 plus percent a year, even though right now only about five to 10% of accounts have invested balances. So the people who get it are really getting it and they're putting substantial resources into their health savings account for those future expenses.

Speaker 2:

So Phil, you must've read my mind because you answered my question around how do we get more consumers into, you know, leveraging part of their HSA for investments. So let me go back to a question around hurdles of adoption. Can you give us your thoughts on what are some of the biggest hurdles to adoption of an HSA for both an employer and a participant?

Speaker 4:

Yeah. There's been surveys that are done on this and not surprisingly. The number one problem is the legislation that enables health savings accounts refers to the underlying medical plan as a high deductible health plan. And that's really the kiss of death. We see that like two thirds of people in surveys are immediately turned off with that label. Had it been labeled the low premium health plan, had it been labeled the savers health plan, it would have been very different, but that's one of the real problems is that it's just, it, it's got that negative connotation to it. And it turns people off right away. Another problem is that the education is often rushed during open enrollment. I cover a lot of enrollment meetings and typically they are an hour long. And the insurance rep drones on for 45 minutes about the existing plans, the new plan. And then we've got 15 minutes left to talk about the health savings account, the dental, the vision, the disability, and everything else. And that's a formula for failure. Quite frankly. The best thing that an employer can do is to start the education on health savings accounts earlier in the year before open enrollment to really package that conversation with retirement savings. So you're talking about the 401k and the health savings account together, really making it clear. This is a financial account. It's a financial account that can reimburse health-related expenses, but it is a financial account. So those are a couple of the big barriers for employees. One of the tough ones for employers, particularly small employers is that those underlying health plans, high deductible health plan, which I call an HSA qualified plan because it is a more positive connotation. Those plans have a very blunt deductible, everything except select preventive care is subject to the deductible. The deductible can be as low as$1,400 for cell phone only, or 2,800 per family. Typically we see them in the neighborhood of 2000, 4,000 or 3,006,000. And if you're a small employer who knows all your employees, you look at that plan and you think, boy, I could save money on that, but Joe's wife has diabetes and that's really going to hurt him. Or, you know, Suze Suze's kid has, has asthma and is in the emergency department three or four times a year. They're really going to get hit with$4,000 of expenses. I don't want to do that to my employees. So we find that that's often the case in those smaller employers, larger ones typically offer it as an option. Sometimes they push it aggressively. Sometimes they don't. Sometimes they price it aggressive in terms of payroll deductions, so that it makes total sense for employees to look seriously at that plan. Sometimes they don't. So with employers, a lot of times it's just getting that buy-in that this is a good option to offer, and we want to meaningfully position it so that employees are attracted to at least looking at it very seriously,

Speaker 3:

A lot of really good information, bill, you know what, when you're talking about the negative connotation of a high deductible health plan, that made me think that, you know, way back when I started in the 401k business, you asked your employees if they wanted to participate, they had to sign a salary reduction agreement. And I thought, well, that's marketing 1 0 1 wants to do that. And it didn't really focus on the savings component of it. So very similar, the industry got over that. It really does seem that there is some good momentum. And I, I love what you've said there on sort of the sequencing of decision-making during open enrollment and that if you make independent decisions, you won't really see that, oh my gosh, I can't do, you know, I can't put this high deductible health plan in or HSA eligible health plan in because of these components, but actually there might be a complimentary benefit. Uh, maybe a supplemental health benefit that we could offer that maybe then your examples could be covered. And I feel like I'd have more of a rounded type of benefit. So there, there are ways. And then again, you, might've freed up some dollars by going from a higher cost PPO plan to a lower premium plan, and then that freed up dollars to pay for some of those benefits. So there's ways to think of this in a complimentary manner.

Speaker 4:

That's a really good point because I have accident insurance. My son slipped in a bathroom a few months ago and ended up with an ambulance ride to the hospital and work in the emergency department. We got a check for$475 to help cover a portion of those deductible expenses. So you're right, it's not just the health savings account that can help you, but it's those accident and hospital and critical illness, voluntary benefits that also help employees manage these out-of-pocket costs and preserve their health savings account dollars for the future.

Speaker 2:

So bill, you have given us just tremendous insights around the importance of HSA, how to think about getting more folks into the investment vehicles, how to really help an employer, um, think about how to position this. So I'm going to close our discussion today by asking you, uh, one of the same questions we posed our most recent guests, Jeanie Fisher, the 401k lady, you know, we may not all be in a position to choose our benefits for our companies, but most of us will be sitting in front of our own open enrollment choices soon as a participant. And you just started to hit on this a little bit, I think with the story of your son, what advice would you leave us with as we choose benefits for ourselves and our families?

Speaker 4:

Yeah, a couple of things I would emphasize first spend a little time. Um, I typically an open enrollment meetings. We'll we'll, we'll tell employees, you know, what, spend half an hour or an hour going over your benefits every year, rather than just doing the auto re-enrolling. It may make a difference of a thousand dollars. And if you spend an hour and you're going to save a thousand dollars on your benefit, that's a thousand dollars an hour, you're being paid. Your employer's probably not paying you that much. And the other piece of advice in terms of what to look for is focused on total cost. You know, today, the biggest problem we have, it's a great efficiency, but a problem here is electronic payslips. Most employees never see how much is being taken out of their paycheck for their insurance. They're looking at what's the deductible. Well, this plant's got a thousand dollar deductible. The other plans got a$3,000 deductible, a thousand sounds a lot better than 3000. That's the plan I'm going to take. But what if you look at it and find that over the course of the year, you're going to pay$1,200 less in payroll deductions for your, for your premiums. And what if your employer is going to give you a thousand dollars toward your expenses? Now, all of a sudden you're ahead on that plan that has the higher deductible. People understand this. When it comes to picking a deductible on their collision insurance and their auto or their homeowners insurance, they know that the higher the deductible, the lower, the premium, and if they have a claim, they're going to give some of those savings back. But they don't think of that in terms of medical medical at the end of the day is insurance like every other kind of insurance and you can either pay more upfront and pay less when you have claims or you can pay less up front, keep more of your money, put it into this account. And if you do have the claims, then you're paying it out. But if you don't have the claims, you not, the insurance company are keeping that money for use in the future.

Speaker 2:

You know, bill, I just want to say thank you that really great advice for our listeners. And, uh, I have a sneaky feeling. We're going to have you back on a future show. So I just want to take a moment and thank you so much for joining us today.

Speaker 4:

Thank you for having me. I appreciate the conversation

Speaker 3:

And thank you to our listeners for tuning into today's episode. And as always, if you want to keep hearing more, remember to go to our show page and hit subscribe to be notified at each new episode. Thank you all so much for coming today on our journey with,

Speaker 1:

Well, this information is provided by Voya for your education. Only need the Voya nor its representatives offer tax or legal advice. Any opinions expressed within do not necessarily reflect those of the way. A family of companies, sports representatives, and are not intended to provide specific advice or recommendations for any individual. Please consult your tax legal advisor before making the tax related investment or insurance decision products and services offered through the Voya family of companies.