401(k) Specialist Issue 1 - 2018 - 42

HEALTH SAVINGS ACCOUNTS
Most agreed that if it had happened, health
savings accounts-already enjoying a surge of
consumer and advisor interest-would step
even further into the spotlight.
But what happens now? With " Rothification "
off the table and tax cuts now law, do
HSAs enjoy the same prominence? What's
the case for HSAs overall and why do they
make so much sense?
We asked Paul Fronstin with the Employee
Benefit Research Institute for insight,
which he was glad to give.
As director of the Health Research and
Education Program at EBRI, Dr. Fronstin's
research includes trends in employment-based
health benefits, workplace
wellness programs, employee benefits and
taxation, and public opinion about health
benefits and health care, among others.
He currently serves on the board of trustees
for Emeriti Retirement Health and the
national advisory board for the University of
Michigan Center for Value-Based Insurance
Design. He is also a TIAA-CREF Institute
Fellow.
Q From a policy standpoint and in the
wake of tax reform, do HSAs still have
the same appeal?
A We still need to look at HSAs as a
potential retirement savings vehicle, because
they still have better tax advantages than
401(k)s. So, there is still obviously interest
there. I think the major result that came out
of the tax reform was the delay of the Cadillac
Tax again.
In a nutshell, the Cadillac tax is a tax on
high-cost health plans. On the one hand,
if the tax takes effect, HSA-eligible health
plans would be an attractive way to avoid the
Cadillac Tax, because the premiums are lower.
However, with the way the Cadillac Tax
was designed, it would count employer and
employee contributions towards the cost of
health insurance, so it didn't make the HSA
plan as attractive as it could be.
Now that the tax has been delayed, I think
it gives employers a reason to look at HSA
plans again. Not as a way to avoid the Cadillac
Tax necessarily, but it takes the issue off
the table for a while, and maybe permanently.
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ISSUE 1 2018 | 401kSpecialist.com
it's the way to do it. It would certainly help
some people who have HSAs now, but I have
a database of 5 million accounts. It contains
at least 25 percent of the universe of HSAs.
I find that only 13 percent of the accounts
in my database max-out their contributions.
They're not contributing less than the
maximum because the contribution limit is
too low. If the limits were increased, only a
small percentage of people are going to take
advantage of that.
But people would be lined-up around
Paul Fronstin
Q So as with the fiduciary rule, the
delays might mean death by a thousand
cuts?
A Exactly. The interesting thing to me is
that I've been looking at enrollment trends in
HSA plans lately, and it seems like the growth
has stalled. Maybe the growth has stalled because
of the Cadillac Tax with the way that it
was written, and that it would include HSA
contributions. Employers would look at that
and say, " I'm not sure I want to go in this
direction just yet, " but now you might see an
uptick in enrollment.
So there are a number of different factors;
the uncertainty has been resolved over the
tax and there is not as much of a sense of
urgency given that the premiums have not
been increasing as much as in the past.
Q Have you heard rumblings in
Washington to increase the HSA
contribution limits?
A Yes, there have been rumblings about
that for the better part of the year or longer.
Last March, when Republicans released
alternative language to repeal and replace the
Affordable Care Act, their legislation would
have doubled contribution limits. It never
happened. Maybe it will come back around.
Who knows?
The interest is there, but I don't know
that, if you want to grow the HSA market,
the corner to enroll in an HSA if the plan
was more flexible in terms of how health
care services were covered. In an HSA plan,
everything has to be covered subject to the
deductible, with the exception of certain
preventive services. For example, if you allow
people with diabetes to go get their annual
eye exam for free and had that carved out of
the deductible, then I would argue that people
with diabetes would be more interested
in HSA plans.
Q What, in your estimation, are advisors
doing wrong and what should they
be doing right?
A That's really simple. What they are
doing wrong is not talking about HSAs.
What they should be doing right is talking
about HSAs. Maybe I'm wrong about that,
but it certainly has that feel. There's not
a lot of information they provide when
sending out descriptions of their services
that include HSAs.
You're going to have more people with
these accounts showing up. Financial advisors
have a select population of people with
means. They're looking to somehow pay for
advice, and they're the ones that maybe are
most likely to be in a position to be able to
max-out their contributions and not touch
them. For a lot of people, they might have
an HSA, but are just using it to reimburse
themselves because they might have high
deductibles.
But now is the time to do it, because it's
growing, and you want to get in early with
your clients. You want to talk about HSAs
before someone else is doing it, so you don't
lose them as clients.
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401(k) Specialist Issue 1 - 2018

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