The Value of HSAs.
Art by Micky Walls
According to Pat Jarrett, founder of recordkeeper HealthSavings Administrators, in Richmond, Virginia, “If you’re going to be a retirement guy, you need to know the best ways to deal with the health care problem.”
Health savings accounts (HSAs) are rapidly becoming the solution to that problem. In January, HSA accounts held $45.2 billion in assets, Devenir Research found, in a survey.
HSAs are custodial tax-exempt trusts that an employee sets up with an Internal Revenue Service (IRS)-approved HSA trustee, such as a bank or insurance company, to cover his medical expenses, now or in retirement. Whereas 401(k)s have a dual tax advantage, HSAs have a triple tax advantage--the money goes in, grows and is withdrawn tax free, as long as the expenses are qualified.
One key requirement is that the account accompany an HSA-qualified high-deductible health plan (HDHP). Both employee and employer may contribute, and the money can be accessed immediately, says Suzanne McGarey, managing principal with Ascende’s health and welfare benefits division, in Houston. This year, an individual may save $3,450 and a family twice that, she says. Once turning 65, the owner may use the money for nonmedical purposes, but it will be taxed as income. If he does this before 65, he pays a 20% penalty.
“Administering HSAs is a relatively new business, and, as companies begin to operate in this industry, they’ve developed different service models,” McGarey says. “We’ve seen sizable variations in fees such as monthly service fees or rollover fees”--the accounts being portable.
Advisers can play an important role, she notes, in understanding the HSA administration fee set-up, explaining that to plan sponsor clients and helping them determine which, if any of the fees they want to cover, she says. Also important is counselling participants on investments.
All of these, like with a 401(k), are fiduciary responsibilities, Jarrett notes.
For advisers wanting to enter the HSA space, a good way to start is to ask their plan sponsor clients whether they offer an HSA-qualified plan, says Kevin Robertson, chief revenue officer (CFO) for HSA Bank in Sheboygan, Wisconsin.
If they do not, ask if they intend to. Then, explain the concept, assuring them future counsel if they should change their minds, he says.
If they do offer one, the adviser can work with the sponsor to choose the best HSA provider and administrator, based on services, fees and investment possibilities, McGarey says. Many HSAs do not permit investing, so it is important to shop around.
The adviser also should decide how much involvement he wants to take on.
Those who want to hand off administration can turn to HealthSavings Administrators or another such provider, then concentrate on investments. “We let the adviser put together a list of funds that complement or mimic what’s happening with the client’s 401(k)” or build a lineup or portfolio he especially likes, Jarrett says.
HSA Bank, similarly, offers turnkey administration services, including enrollment, contribution processing and reporting, and customer service. “The adviser can insert himself, or not, into any part of that equation,” Robertson says. This year, the bank plans to launch “an adviser-driven HSA solution,” he says.
Sometimes advisers’ clients already offer HSAs, but this actually can create an opportunity, McGarey says. For example, Ascende health benefits advisers may establish HSAs when designing an HDHP. But those advisers are not licensed to consult on investment decisions, allowing the retirement adviser to step in. “Realistically, the retirement adviser will likely take over when the accounts have [reached] a certain level of revenue, and they are viewed as another long-term investment to be coordinated with 401(k).”