While conducting client meetings recently, I have noticed increased interest in HSAs and I wanted to figure out why. Let me halt your worries by saying that HSAs aren’t a bad thing by any means, but I wanted to make sure individuals were still doing what was best for themselves and their families. In a few discussions with colleagues, as well as some in depth conversation with clients, I determined this new push was due to employers wanting to add an extra layer of value to employees. This helps employers keep health costs low for themselves, while still adding an option for their employees. Again, none of this is bad, it is just good to understand what that means for you, and how it can and should translate to your personal situation.
The era of the high deductible, or whatever you’d like to call it, is essentially (re)driving the popularity of the HSA. While employers attempt to keep their benefit costs lower for employees, they do so by offering programs that have a higher deductible. This allows employees to choose whether they’d like to have a higher deductible and lower premium, or vice versa. If you go the route of the higher deductible, you’re saving money, which can mean the HSA looks much more attractive. Now that you can save more from having a lower premium, it seems like the right choice to use the HSA. You are able to deduct contributions as well as invest the account into certain areas of the market. It adds that level of flexibility. As an advisor, it’s important for me to make sure clients are doing what’s best for themselves, even if the assets are not being managed here. That being said, I find that there is a disconnect in the investment strategy of the HSA, compared to what it SHOULD be doing.
For the investing opportunity that having an HSA allows, let’s take a look at the things we know:
1.The market is volatile. It will go up and down, regardless of how much we try and control it; this will remain a constant.
2.The HSA account is for health care expenses, but what you lose in terms of potential premium payments, you are gaining as funding for this account. However, let’s remember that this account is for health care still.
You’re probably thinking, “Great, I already knew that. So, what’s the big deal?” The big deal is that some people are investing these accounts for the long run and are overly aggressive in how they manage them. On the other end of the spectrum, some individuals are too conservative, and what we need to do is take a mindful, balanced approach in how these assets are managed. In order to combat that, we have to understand time horizon. In a perfect world, we would never need to pull these assets out and they could grow forever. But because this is not the case, we have to adjust our investment strategy to complement our own personal time periods while also being cognizant that we may not need these funds.
So, what does this mean for you? You should look at potential things that could impact needing to draw from the assets. For example, if you think you may want to have a kid within the next 10 years, you’ll have to account for the expenses. Because you establish a timeframe of 10 years, you can use an approach that is both in stocks and bonds because it will offer flexibility in your investment. In this scenario, fund liquidity isn’t a need right NOW, but we want to make sure it grows during those 10 years. In order to do that, having a balanced approach like 50/50 (stocks/bonds) allows growth for a flourishing market, yet protection for a down market. It’s all about balance.
For clarity, I am not for or against HSAs. I merely want individuals to understand the cost/benefit of utilizing them, but also to make sure that their accounts are balanced appropriately. Like anything, we want to tie savings and investing to goals. The primary goal for an HSA is for healthcare expenses, so please make sure you’re investing wisely so that you have funds in your account when health related expenses arise. I understand we can’t predict the future, but we can all assume that there could be something health related at any point, and thus, make sure the investment is balanced towards that. If you have a specific health insurance question or concerns relative to anything in your financial situation, feel free to schedule a complementary meeting with me and I’d be more than happy to help.