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Health savings accounts are well established in the U.S., but are underutilized and less well understood than qualified retirement plans, according to the latest Cerulli Edge — U.S. Retirement Edition.
The industry, however, is expected to evolve during the next several years in response to trends emphasizing holistic planning and financial wellness, the report said.
Cerulli noted that in its most recent 401(k) participant survey, HSAs did not resonate with many participants. Asked how they would allocate an additional $1,000, respondents ranked HSAs last out of a dozen options, well behind alternatives such as paying off credit card debt, donating to charity or making 529 plan contributions.
HSAs are misunderstood by many workers. One large employer cited in the report said only one in 10 of its employees could correctly identify four basic characteristics of HSAs. Even some who purported to be knowledgeable about HSAs, in a study cited by Cerulli, incorrectly thought that unused year-end balances were subject to forfeiture.
HSA Advantages Go Unused
HSAs are the most flexible, tax-favored vehicle through which to plan for medical expenses, yet employees rarely use them to full advantage, the report said.
"Retirement advisors and financial planners generally acknowledge the triple tax-advantaged nature of these accounts, making them an attractive vehicle for long-term savings, but many investors are in the dark," Anastasia Krymkowski, associate director at Cerulli, said in a statement.
Krymkowski said investors should plan ahead and cover expenses from medical emergencies or costly procedures with tax-advantaged dollars whenever possible.
