Bank of New York Mellon : The HSA Opportunity, Explained

Written by: Kathy Mertes | Director, Head of Alliance Management, BNY Mellon Treasury Services

Health Savings Accounts (HSAs) are growing dramatically. In my October 16th panel at AFP, my co-presenter Todd Berkley, Global Leader of BenefitWallet at Conduent Human Resource Services, discussed the ways that HSAs deliver on organizations' need to help employees make informed decisions and take more responsibility for their health care, as well as using HSAs to accumulate wealth via tax-advantaged accounts.

HSAs offer a powerful health and wealth vehicle for employees. Funds never expire and may be invested. The accounts have a triple tax advantage: tax deductible, tax-free withdrawals, and tax-free earnings on investment returns.

Many people do not fully understand the implications of these features. They are not simply a way to put money aside for short-term health expenses. They are also a retirement savings vehicle, since Americans become responsible for 100% of their health care expenses, including premiums, copays, deductibles and all other out-of-pocket expenses in retirement. Because of this misunderstanding, just over a third of employees who are covered by a HSA-qualified plan actually contribute. Even more dramatic, less than 3% of HSA account holders currently invest.

With such low participation rates, employees are missing out on the benefits, but also employers lose the opportunity to save on FICA taxes and gather good data for plan design, according to Berkley.

Given my role at BNY Mellon, this missed employee opportunity reflects an untapped opportunity for financial professionals.

And there's good news for my colleagues on the payments side of Treasury Services, too. Because of the way consumers use the accounts for spending, they also open the door to payment innovation. HSAs are keeping pace with tools and resources that provide personalized, digital and secure transactions for both payments and investments.

With the vigorous level of Q & A we had at the end of the panel, I'm looking forward to seeing just how these opportunities come to fruition.