Health savings accounts or HSAs are popular for those employees who wish to put away extra money to pay for out-of-pocket medical costs. The Internal Revenue Service raised the allowable savings by $50 per eligible employee for 2017, so it’s an even more attractive way to save pre-tax dollars. But, this alone doesn't account for the dramatic increase in the use of HSAs by the millennial generation, who are actively participating in this tax shelter.
Millennial myth busted—they are savers not spenders
One generally thinks of millennials as self-absorbed and financially strapped due to student loan debt and a penchant for expensive habits like buying the latest consumer electronics. But the recent The State of Employee Benefits 2017 report published by employee benefits SaaS firm Benefitfocus says otherwise. In a survey of 1 million unique employee enrollment records, the number of eligible millennials under the age of 26 enrolling in a health savings account rose by 40 percent over last year. These millennials also stepped up the amount they are contributing to their HSA plans. On average, this increase is $200 per employee (or a 20 percent increase).
These contribution amounts are somewhat less than the IRS thresholds, but they still indicate that millennials are becoming smarter employee benefit consumers. Those participating in the plans are understanding how critical it is to be putting away money for medical emergencies, higher than average annual deductibles, and more. Others are placing a greater emphasis on putting away money that can be used at a later date if they switch jobs or maintain wellness if they suddenly find themselves without access to health benefits.
Why are health savings accounts attractive to millennials?
Millennials have grown up in some enlightening, albeit challenging financial times. This can explain why they are interested in health savings accounts and using this method for putting money away for the future. Millennials have watched their parents struggle with financial matters, particularly during the recession of 2007-2011. They've also been watchful as healthcare reform has evolved and been hesitant to participate.
Many millennials place a preference on their work life balance and staying healthy, therefore they understand the expense involved in paying for adequate health insurance and regular preventative medical care. They tend to be very health conscious and try to avoid the health issues of generations before them. Many don’t see the point of paying so much for health insurance benefits if they are healthy and don’t need to see the doctor so much.
Retirement savings opportunity
A health savings account is often more attractive to a young person than other forms of savings plans, such as retirement savings that are not easy to access when a need arises. Use of 401K plans have dropped among millennials, and now they may have to save up a lot more than previously believed.
According to NerdWallet, millennials may be looking at around 22 percent of their income put aside in retirement savings if they hope to retire at a reasonable age someday. This is well above the 11-15 percent that’s generally recommended to consumers. The tax rates and cost of living are impacting this requirement. Therefore, millennials need to do a lot of smart allocation of their earnings, and are looking at ways to reduce their tax liability at the same time. When combined with traditional retirement savings plans, they can put tax-free money away in a health savings account. If they need to draw from this money, they can do so as needed for medical costs and not worry about penalties for early withdrawal.
Flexibility and portability with health savings accounts
Standard employee benefits do not meet the needs of many millennials who are undergoing rapid changes in their lifestyles. Some are just out of college, living on their own for the first time and trying to manage a budget. Others are getting married, buying a home, or having children. Still, others are so new to their careers that they do not intend to stay with any one company for too long.
Health savings accounts appeal to younger consumers who are looking for full flexibility of choices. They may want to shop around for the right health care providers and services that they need. They may also want benefits that they can take with them when they switch jobs. HSAs are known for providing this flexibility and control over one’s health care dollars.
Mobile technology and access to HSA tracking
The employee benefits world is growing more technologically advanced than ever before. Now, it’s possible to review health care plans, enroll in benefits, check health savings account amounts, and make decisions on the go with a smartphone. Mobile apps for health care savings plans put information at one’s fingertips. Millennials like this ability to make decisions whenever and wherever they wish, and make changes to their financial allocations if they need to.