Pub. 6 2016-2017 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S July • August 2016 11 The FSA User The “flexible spending account (FSA)” user treats their HSA as if it were an FSA. They contribute only what they plan to spend that year, (or only what their em- ployer contributes in a year) and deplete the account by the end of the year. And their account will see no year over year growth. Why do they treat it as an FSA? It may be because of a lack of HSA education. They may not understand the difference between an HSA and an FSA and think that they are required to spend it all or they will lose it. Many employers don’t even fully understand the difference between the two accounts. Individualsmight have a lower income and money is needed elsewhere within their household bud- get so they don’t have any- thing extra to save within the HSA. However, they are at least taking advantage of the tax savings by using the HSA for their health expenses. Several recent reports have indicated that as many as 43% of people that are enrolled in HSA-eligible health plans do not even have an HSA at all. The HSA User This individual also uses the HSA account for all of their qualified health expenses and contributes a bit more than the FSA users. They do, however, realize they don’t have to use all contributions by the end of the year, so their accounts will have some marginal year over year growth. Similar to FSA users, HSA users at least take advantage of the HSA tax benefits. But they may not have enough additional money to savemore, or theymay not fully understand the value in maximizing their HSA contributions. FSA and HSA users will drive revenue for banks through debit card swipes and, in some cases, account fees (depending on what fees the bank charges). The HSA Saver HSA savers recognize the benefits their HSAs provide— to pay for their current health care expenses and as a long-term savings vehicle for future health expenses. HSA savers contrib- ute the maximum amount each year, and while they will use the assets when needed for health expenses they incur, their overall goal is accumulation within the account. HSA savers’ account balances will grow at a much faster pace thanHSA users’ accounts. They may choose which health expenses they will pay out of pocket (if possible) rather than tapping into their HSAs for every medical expense. The HSA Investor Similar to HSA savers, HSA investors treat their HSAs as an additional tax deferred savings vehicle. HSA savers not only maximize their contributions but often make the conscious choice to pay medical expenses out of pocket rather than using their HSA dollars. HSA investors’ account balances growmuch faster than the other three personas with contributions being the main ac- count activity. In addition, we are starting to see HSA investors take it one step further by looking for more robust investment options within their HSAs to increase their rate of return. Although HSA investors are looking for additional invest- ment options, they typically leave a portion of their account balance in the traditional cash or demand deposit account to ensure they have some liquid assets available for medical expenses. In this case, the HSA owner could be shared by a bank and a nonbank organization. Recognizing the Potential for Persona Changes While most HSA programs include all four personas, keep in mind that an individual will not remain in one persona for- ever. Education on how HSAs work and how to maximize the tax benefits may move an individual from the user spectrum to the saver spectrum. Career advancements also may move individuals up the persona spectrum, as they havemore income and can increase their savings. Conversely, life events can also move an individual the other direction. Significant or continuous health expenses, or negative household budget changes (e.g. loss of a job, etc.) may force the use of the HSA, depleting the balance and affecting contribution activity. Wherever individuals fall on the HSA persona spectrum, recognizing that each persona has opportu- nities and unique characteristics will help your bank specialize your HSA offering for each group and separate yourself from the competition. n Megan and her team work directly with financial organizations of all types to create, implement, and maintain their IRA and HSA programs, focusing on software implementation, training, and on-going support. Megan has more than 17 years of experience in the IRA industry. Megan’s areas of expertise include Traditional, Roth, SEP, and SIMPLE IRAs; health savings accounts; and Coverdell education savings accounts. In addition, Megan has had extensive Lean Six Sigma process improvement training, and has applied that methodology in working with key financial organizations to improve their implementation and product launch processes.