Few topics elicit a greater response from financial advisers than health savings accounts. This interest is warranted as rising health care premiums and the consumer-directed trend in health insurance have fueled meaningful growth in HSA popularity. Advisers are now seeking ways to offer investment solutions and allocation advice for HSA assets.
(More: Helping clients navigate the choppy HSA waters)
Most people who fund HSAs place their contributions into a money market fund, and then use a debit card to pay for uncovered medical expenses. I recommend two changes to this strategy:
1. Instead of placing your HSA contributions into a money market account, invest the money into an asset class suitable for long-term growth.
2. Refrain from using the money on current health-care needs. Treat the account as you would your other retirement savings vehicles.
One key question that follows is: How do I, as an adviser, manage this asset? The industry is making progress with this issue, but still has a way to go. We must recognize that a health savings account requires an HSA custodian. Most custodians are banks, financial services companies or health benefit administrators. Since most individuals obtain their health insurance and corresponding HSA through their employer, with the employer often making a contribution, the custodian is usually connected with the employer's health insurance provider. Most custodians, however, do provide investment choices by establishing a relationship with various investment firms. Some will offer a limited menu of mutual funds, but some do provide a full service brokerage account.
For example, Charles Schwab & Co. Inc.,
Fidelity Investments and TD Ameritrade all have relationships with HSA custodians. This at least provides an adviser the opportunity to engage clients in a conversation about prudent ways to allocate HSA assets, and may even provide a means to link the account to the adviser's book of business.
The rollover/transfer market also creates opportunities. HSA assets, unlike 401(k) assets, always are available for transfer. Clients can use an independent custodian who offers the aforementioned investment accounts. A quick Internet search will provide a list of custodians and corresponding administrative fees.
(More: How to get workers to contribute more to HSAs)
Perhaps the good news is that individuals who invested their HSA assets earned 12.5% over the last three years. The more challenging statistic is that 87% of HSA assets are in money market accounts. For those who use the account as a liquid source of health-care reimbursements, this makes sense. The need, however, is to educate clients about health-care expenditures during retirement and the benefit of creating tax-free sources of income to fund these costs. To illustrate this concept, consider a 50-year-old married couple who:
• Contributes the maximum $6,650 to an HSA family account
• Contribute the additional $1,000 per year starting at age 55
• Refrain from making any distributions
• Invest the money and earn 8%
For simplicity, I will assume the contribution limit remains at $6,650. The reality is that the limit will be raised to adjust for inflation, allowing even greater contributions. At age 65, the HSA account would be valued at $210,652.
As you speak with your clients, find out who is using a high-deductible health insurance plan with a health savings account. Help them utilize the full potential of these plans as part of your overall comprehensive retirement income plan.
Peter Stahl is the founder of Bedrock Business Results, which provides training to financial advisers and their clients on the convergence of health care and financial planning.
