With over 30 years of industry experience, Mike DiSimone is dedicated to the education and advancement of health and wellness solutions.
Imagine your employees entering retirement with a tax-free $1 million nest egg for health care expenses. Despite rising healthcare costs, this financial milestone may be achievable with the right plan in place.
As a leader, I believe it’s crucial to help those within your company find ways to save for healthcare in retirement. Medicare, while valuable, doesn’t cover everything; I find that health savings accounts (HSAs) can be a great way to help fill in gaps.
As the head of a company that provides health and retirement benefits solutions, I have seen how employees today are assuming more responsibility for out-of-pocket healthcare expenses, both now and into retirement. By knowing how to promote HSAs and creating a system that maximizes these benefits, you can help your employees secure their financial future.
The Cost Of Healthcare In Retirements
Medicare, the government health insurance program for those 65 and older, wasn’t designed to cover all medical costs. This results in leaving significant gaps that require additional savings.
For instance, a 2024 Employee Benefit Research Institute (EBRI) report found that a 65-year-old man with a Medigap plan will need to have on average $184,000 saved to cover premiums and prescription drug expenditures, while a 65-year-old woman will need on average $217,000. Couples will need $351,000.
But even beyond those monetary costs, not saving enough for retirement can impact retirees’ quality of life, forcing difficult choices between healthcare and essentials like housing and food.
Helping Your Employees
To help employees save for future healthcare expenses, you can offer high deductible health plans (HDHPs) with HSAs. HSAs benefit from the “triple tax advantage”: Funds are contributed pretax, money grows tax-free and distributions are tax-free when used to pay for eligible healthcare expenses. Not only can HSAs significantly reduce business costs and risks for you, but they also empower employees to build a substantial nest egg for retirement.
Finding a qualifying HDHP that works well with an HSA requires not only meeting IRS guidelines but also weighing the demands of your workforce against the objectives of your business. It’s important to consider out-of-pocket maximums and deductibles, which ensure premiums remain affordable for the business and attainable for the employees.
Toward this, I encourage you to design health insurance plans that maximize HSA benefits and encourage consistent contributions and investing options. Additionally, offering educational sessions about the long-term advantages of HSAs and how to optimize them can significantly increase participation. Some key factors to get across and push within the culture of your organization:
1. Start early. Encourage even your youngest employees to begin contributions and continue through age 64.
2. Maximize contributions. Highlight the possible gains that can be made with the maximum allowable contribution each year. In 2024, an employee with an HDHP and individual coverage can contribute up to $4,150 to their HSA, while those with family coverage can contribute up to $8,300.
3. Keep saving. Emphasize growing the account balance by not taking distributions.
4. Catch-up contributions. For those older employees, 55 to 64, let them know about the $1,000 annual catch-up contribution.
Most people contributing to an HSA might not need to use all the funds immediately, allowing them to build up a balance over time. By understanding these factors, you can encourage and better educate your employees, helping them effectively save for their healthcare and retirement.
The Importance Of Education
Participation increases can be obtained by offering matching contributions, even modest ones. Employees can start with smaller contribution amounts that expand over time. To help employees make better decisions, offer financial education training that emphasizes the tax and healthcare benefits of an HSA. This helps ensure that your employees understand the health and financial benefits of HSAs and gives them opportunities to make informed decisions about their future.
Introducing HSAs to the workforce can be challenging, though. The most common issues I see stem from a lack of employee understanding, resistance to change and administrative complexities. Employees may not properly understand how HSAs function, the long-term benefits of tax savings or how they complement HDHPs, resulting in low engagement. Again, invest in clear, ongoing education highlighting immediate and future financial benefits to help overcome this barrier.
I find that once employees understand the potential of an HSA, they’re more likely to contribute consistently and even invest their HSA dollars. By implementing educational programs and offering matching contributions or other incentives, you can further encourage employees to take full advantage of their HSAs, leading to better financial security in retirement.
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