Workplace-based health insurance is following in the footsteps of retirement benefits.
In response to rising premiums over the past few years and fear of the unknown when Affordable Care Act changes kick in next year, increasing numbers of employers are moving away from traditional group health insurance coverage and replacing it with high-deductible insurance plans paired with Health Savings Accounts (HSAs).
The evolution in health care coverage looks a lot like the migration from traditional pensions to employee-financed 401(k) plans that occurred over the past three decades. But the health care evolution—one might call it a revolution-- is occurring at a much faster pace.
A recent Towers Watson report “2013 Employer Survey on Purchasing Value in Health Care,” found only 26% of respondents were very confident that their organization will offer health care benefits 10 years from now.
The shift in responsibility for health care planning from corporations to individuals presents workers with major challenges. Health insurance premiums have doubled since 2002—a growth rate three times faster than wages—putting pressure on employees' finances.
“We believe the key to solving some of the health care benefits issues is to change the view about health insurance as an annual benefit and elevate it as a key component of long-term financial wellness,” said Bob Kaiser, health of Health Savings Solutions for Bank of America Merrill Lynch. “It should become as important as saving for retirement.”
It sounds like an enormous opportunity for financial advisers. HSAs are tax-advantaged accounts that allow employees to make pretax contributions, withdraw the money for today's medical expenses tax-free, and carry over any balance at the end of the year for future health care needs. Individuals with a high-deductible health-insurance plan can contribute up to $3,250 to an HSA in 2013 and families can contribute up to $6,450. Those age 55 and older can contribute an extra $1,000.
“Employees may need help during the transition to learn how to manage their new health care benefits and how to maximize the value of those benefits to efficiently manage today's needs while saving for health care during retirement,” Mr. Kaiser said. In the long run, it could be a good thing. “Employees who are more involved in their health care decisions become better health care consumers,” he said.
Assets in Bank of America HSAs grew by 48% between January 2012 and January 2013, according to the latest quarterly financial wellness scorecard that Bank of America Merrill Lynch released today. As of March 31, there were nearly 234,000 active and funded HSA accounts—a 68% increase since 2011.
The growth can be attributed in part to increases in account use among employees of existing corporate clients; users contributing more to their accounts and carrying balances forward; and new relationships with individuals and employers.
The growth is consistent with the experience of other financial providers.
Nationwide, assets in more than 8.2 million health savings accounts grew 22% to $15.5 billion at the end of 2012, according to semi-annual HSA survey and research released by Devenir in January. The consulting firm expects the HSA market to reach $26 billion in assets by 2015 with HSA investment dollars—the portion allocated to growth rather than liquid assets for current medical expenses—to represent nearly $21 billion.
