JANUARY 2019 | MAKING HSAs RELEVANT TO MILLENNIALS 1

With decades ahead until retirement, Millennials stand to gain the most from investing in a health savings account (HSA). But research shows they lag behind other generations in understanding—and leveraging—the long-term benefits of HSAs.

Making HSAs Relevant to Millennials

In early 2016, HealthSavings Administrators and HSA Coach partnered to survey HealthSavings’ accountholders. In analyzing the data, insights surfaced about how Millennials view and use HSAs.

January 2019

Read on for 5 quick insights, as well as 5 tips for presenting the benefits of HSAs to Millennials.

1JANUARY 2019 | MAKING HSAs RELEVANT TO MILLENNIALS

MONEY ON THEIR MINDS

According to the U.S. Census Bureau, Millennials have officially replaced Baby Boomers as the largest living generation. With 30 years or more until retirement, members of this generation have ample time to grow a substantial nest egg and fund their golden years. With decades to prepare, allowing compound interest to work its investment magic, it would seem this generation should have a relatively low financial stress level.

Not so.

Instead, Millennials are increasingly concerned about their financial futures. PriceWaterhouseCoopers’ 2016 Employee Financial Wellness Survey attributes the generation’s financial stress to student loan debt, more immediate financial

12.8%Unemployment rate

Student loan debt

Immediate financial priorities

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priorities, and risky financial decisions, among other factors. Add to that an unemployment rate of 12.8 percent*, well above the national average. Whatever the cause(s), the result is a generation more concerned about its financial future than its counterparts.

And for good reason. A recent study from HealthView Services estimates that a 45-year-old couple will pay $592,000 in total medical costs during retirement. Considering even the oldest Millennials are still 10 years behind that, their burden will certainly be even greater.

It’s critical to ensure Millennials are fully aware of all of the financial tools in their financial wellness toolbox, including, and perhaps especially, HSAs.

With decades to prepare, it would seem this generation should have a relatively low financial stress level. Not so.

* Source: Generation Opportunity’s Millennial Jobs Report, March 2016, U-6 unemployment rate (includes all unemployed as well as those marginally attached to the labor force and those employed part-time for economic reasons)

JANUARY 2019 | MAKING HSAs RELEVANT TO MILLENNIALS 2

DEVIL’S IN THE DETAILS

HealthSavings has specialized in health savings accounts since President Bush signed the Medicare Prescription Drug Improvement and Modernization Act of 2003 (P.L. 108-173). For over a decade, the organization has been educating consumers and answering questions about HSAs. President and cofounder Patrick Jarrett feels strongly that the benefits of HSAs far outweigh the perceived burden of navigating the complexities.

“HSAs are universally underutilized, largely due to misconceptions and a lack of information,” Jarrett said. “But the data show we have a real opportunity to educate Millennials, in particular, on the long-term benefits HSAs can provide.”

HSA Coach Founder/CEO Aaron Benway agrees, which is why he’s created a suite of personalized tools and resourcesto help accountholders understand

HSA rules and best practices. “HSA account rules and limits are confusing to even the most knowledgeable participant,” Benway said. “But with the right mix of tools, resources, and engagement, anyone, especially Millennials, can really valuefrom HSAs.”

An advisor to both HealthSavings and HSA Coach, Roy Ramthun led the U.S. Treasury Department’s implementation of health savings accounts starting in 2003. Ramthun worries that Millennials don’t leverage HSAs to their fullest extent, speculating that a lack of knowledge and competing financial priorities are to blame. Ramthun says it’s important to include HSAs among all of Millennials’ savings options including 401k, 403b and IRA plans.

“The data show we have a real opportunity to educate Millennials, in particular, on the long-term benefits HSAs can provide.”

— PAT JARRETT, PRESIDENT

JANUARY 2019 | MAKING HSAs RELEVANT TO MILLENNIALS 3

MILLENNIALS AND HSAs: TOP 5 INSIGHTS

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So how do Millennials view and use HSAs? Based on the survey, here’s what we found:

83.3% OF MILLENNIALS are likely to contribute to their HSA— 4 percentage points higher than the average response.

But they’re 17.1% LESS LIKELY to use their HSA primarily to save for the future.

They’re less likely to save HSA funds for the future.Millennials seem to focus less on using their HSA as a long-term savings vehicle. A 2016 report released by think tank Financial Finesse might shed some light onto why, revealing that Millennials were the only generation to make short-term goals, like getting out of debt, their top financial priority. Not surprisingly, the report also revealed insufficient retirement savings among the generation’s top vulnerabilities.

17.1%

83.3%

They’re likely to contribute.The good news is that once Millennials enroll in an HSA, they’re likely to contribute. In fact, they’re slightly more likely to contribute than those in other generations. The survey data also revealed that more than half enrolled in their high deductible health plan (HDHP) to gain access to an HSA or to receive their employer’s HSA contribution.

1/4 OF MILLENNIALS— 2X the percentage of those in other generations—didn’t know their HSA funds could be invested.

They’re less aware they can invest.Short-term focus isn’t the only culprit, though. It seems Millennials lack HSA knowledge other generations seem to have. For example, fewer knew that their HSA funds could be invested. Given their longer time horizon, they could benefit even more.

Even those Millennials who did know they could invest HSA funds are a bit more RISK-AVERSE.

They’re a little more wary of investing.Even Millennials who did know they could invest their HSA funds were a bit more concerned than their counterparts about investing — particularly marked stability and the potential of losing money.

They want input.Millennials grew up with social media and online shopping, complete with access to composite ratings and customer feedback. It’s no wonder Millennials are open to advice, especially when it comes to their money.

BUT MILLENNIALS ARE OPEN TO ADVICE.

Also, more Millennials said they’ve asked family, friends, and coworkers for advice on healthcare expenses.

MILLENNIALS: 11.6% AVERAGE: 6.9%

Millennials are 1.7 times more interested in using a financial advisor than the average respondent.

MILLENNIALS: 28.5% AVERAGE: 16.6%

Source: 2016 Health Savings Survey. Conducted by HealthSavings Administrators and HSA Coach in Q1/Q2 2016. Sent to 24,800 HSA accountholders with a 9% response rate.

HAVE CONCERNS ABOUT INVESTING HSA FUNDS:

11.1%OTHERS

18.4%MILLENNIALS

JANUARY 2019 | MAKING HSAs RELEVANT TO MILLENNIALS 4

1 2 3Paint a picture. Highlight the unique now- or-later nature of HSAs.

Research shows that Millennials are simultaneously focused on immediate financial priorities and concerned about their financial futures. The PriceWaterhouseCoopers report revealed that 14 percent of Millennials took a hardship withdrawal from their retirement savings in the last year, indicating that they want to save for the future, but often prioritize immediate expenses.

HSAs offer unique flexibility in that their funds can be used for both short- and long-term, as needed. And since most of us can’t predict our future health, it’s helpful that HSAs allow for worry-free budgeting. So an accountholder could access their funds to cover a medical emergency one year, and sock dollars away during a healthy year to prepare for future expenses—near- or long-term.

Illustrate the long-term impact.

The annual contribution limits mandated by the Federal government are relatively low, creating a low-dose savings option many Millennials can digest. On the flipside, those same limits might make it difficult to conceptualize the potential return over time, especially when funds are invested.

However, Benway warns against relying on benefit selection tools to tell the HSA story. “Although these tools can help individuals select appropriate benefits for their situations, we’ve found that they don’t offer the specificity necessary to adequately position the benefits of HSAs,” he said. “They’re not personalized enough to illustrate the advantages.”

Instead, Jarrett suggests providing a realistic example of how those manageable contributions can grow, even despite unforeseen, necessary withdrawals. For example, according to the Employee Benefit Research Institute (EBRI), assuming a 5 percent rate of return, a 30-year HSA accountholder could save up to $313,000.

5 TIPS FOR MAKING HSAs RELEVANT TO MILLENNIALS

In short, many Millennials are in the financial wellness game, but they’re not accessing the HSA’s full value. Here are some tips for tailoring the HSA message in a way we think might resonate:

HSAs are still relatively new, so members of any generation could benefit from a crash course on how they work. Details like who’s eligible and how to enroll are important, but so is the rest of the story.

“HSAs are truly unique in many ways,” Ramthun said, “which can make it tough to sort out all of the details. But those very differentiators that create a bit of complexity at first are the same differentiators that set HSAs apart as a flexible, unique savings tool.”

To help Millennials in particular get over the learning curve, Benway recommends using visuals to explain at-a-glance how HSAs work.

For example, an infographic like the one above can quickly illustrate how HSAs provide major tax savings (essentially a 25 percent rebate on eligible medical expenses, depending on your tax bracket).

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JANUARY 2019 | MAKING HSAs RELEVANT TO MILLENNIALS 5

4 5 Encourage them to take action.

Millennials grew up figuring things out on their own. Given the right tools, they’ll reach expert level before their counterparts even log in.

“Millennials are hands on,” Benway said. “They are willing and able to navigate complexity if they have access to the right resources,” Benway said.

Those resources should include options that let Millennials explore and learn on their own, like savings scenarios calculators and apps.

“To close the knowledge gap,” Ramthun said, “consider offering tools, resources, and information throughout the year—not just during enrollment.” Ramthun also points out it’s important to meet Millennials where they are by communicating on social media and in mobile-friendly formats.

During most employee benefits discussions, HSAs are slotted right alongside health insurance options. The logic is sound: HSA eligibility revolves around qualified health plans. But pairing HDHPs and HSAs places the focus squarely on health spending rather than health savings, which contributes to the misconception that HSAs are nothing more than FSAs with a few added perks.

Jarrett encourages brokers, planners, and employers to tell the story differently to get accountholders to act differently.

“The S is for savings,” Jarrett said. “When you tell the story differently and position the HSA as a savings tool—specifically a retirement savings tool—peoples’ behaviors change.”

HealthSavings has been telling its accountholders this version of the story for years, and encourages a long-term perspective by offering benefits like first-dollar investing.

The result? A greater contribution to investments. On average, HSA accountholders allocate 85 percent of their funds to cash and 15 percent to investments. By comparison, HealthSavings’ accountholders put 13 percent in cash and invest 87 percent of their money.

“Just a slight shift in perspective goes a long way in encouraging people to think long-term.”

Tell the story differently.

In many ways, HSAs are a perfect fit for Millennials. Providing the right information in the right formats, and tailoring the message to address Millennials’ unique needs, will bridge the knowledge gap and help Millennials tap into the full potential HSAs offer.

5 TIPS FOR MAKING HSAs RELEVANT TO MILLENNIALS

JANUARY 2019 | MAKING HSAs RELEVANT TO MILLENNIALS 6

HealthSavings.com www.HSAcoach.com

JANUARY 2019