A top fear in retirement is out-of-control healthcare costs, but a new survey finds few business owners fully understand the benefits and operations of health savings accounts (HSAs).
More than half of business owners (55%) consider healthcare costs to be the biggest expense for those in retirement – outpacing housing (24%), taxes (12%) and food (6%). Yet just 1 in 5 (20%) respondents fully understand important elements of HSAs, according Nationwide Retirement Institute’s survey of 406 U.S. business owners with 11-500 employees.
Many respondents didn’t understand that it’s necessary to provide a high-deductible health plan (HDHP) when offering an HSA, that employers can contribute to employee plans and that balances carry over year-to-year, demonstrating the misconceptions and barriers that exist in helping employees save for healthcare expenses, Nationwide notes.
Among these business owners, 3 in 4 expressed interest in talking to a financial advisor about employee benefits that reduce company taxes (77%), increase retirement savings (76%) or offer employee tax savings (74%).
“Business owners want to talk about employee benefit solutions that offer tax savings and can help increase retirement savings,” notes Kristi Rodriguez, leader of the Nationwide Retirement Institute. “A real opportunity exists for financial advisors to play a major role in educating business owners about the benefits of health savings accounts for both their business and their employees.”
Who Offers HSAs?
Meanwhile, 4 out of 10 business owners offer their employees an HSA. Another 21% are considering one and 38% state they are not considering an HSA.
And as would be expected, the larger the business the more likely it is to offer an HSA. Nearly 60% of companies with 51 to 100 employees offer an HSA and 60% of companies with more than 100 employees offer one, compared to only a quarter of companies with 50 or fewer employees.
Not surprisingly, those that don’t offer HSAs and are not considering one say they are unsure of the advantages associated with HSAs. Among these business owners, cost and understanding of HSAs are cited as the biggest barriers. Business owners with more than 50 employees are 1.5 times more likely than business owners with fewer employees (11-50 employees) to cite cost of administering accounts as the biggest barrier to offering an HSA.
When comparing the findings by generation, Millennial business owners apparently lead the way. An overwhelming majority of Millennial business owners (81%) offer an HSA option, compared to only 44% of Gen X and 25% of Boomer-owned businesses, according to the findings.
Perhaps this is because Millennial business owners were found to have a stronger understanding of important elements of HSAs, in addition to how HSAs can be advantageous for them and their businesses. One drawback is that only 31% of Millennial business owners knew that HSA balances carry over year-to-year. They did, however, express the greatest interest among the generations in speaking with a financial advisor about benefits associated with HSAs, with more than 90% saying they’d be interested.
“[HSAs] can supplement retirement savings plans by promoting greater savings and easing retirement concerns around healthcare costs, while offering special tax treatment not found in other retirement accounts,” John Carter, president of Nationwide’s retirement plan business, emphasizes.
“We believe the growth of health savings accounts follows the same upward trajectory of defined contribution plans. As employers become more familiar with health savings accounts, advisors need to help ensure they understand the associated benefits.”