Prescription for Employee Financial Wellbeing? Start with an FSA or HSA

With inflation continuing to drive prices upward on a broad range of products and services, financial wellness is top of mind for nearly everyone. According to a recent Bank of America survey, 62% of employees are stressed about their finances and 71% feel the cost of living is outpacing growth in their income. All told, […]

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With inflation continuing to drive prices upward on a broad range of products and services, financial wellness is top of mind for nearly everyone. According to a recent Bank of America survey, 62% of employees are stressed about their finances and 71% feel the cost of living is outpacing growth in their income. All told, the percentage of employees who feel financially well dropped to a five-year low of 44% in July 2022.

This is important news for employers, nearly all of whom feel at least partially responsible for their employees’ financial wellbeing. There is good reason to take this seriously, considering that 46% of employers report seeing increased resignations in recent years. And when the cost to replace an employee ranges from one half to two times that person’s salary, employees leaving in large numbers to find financial security can be costly for businesses.

Employers can support financial wellbeing for employees by educating their workforce about how a flexible spending account (FSA) or health savings account (HSA) can work with existing solutions like a 401(k) to support their short- and long-term financial goals. In fact, according to the Bank of America survey, 84% of employers say offering financial tools and education helps reduce attrition, and 81% say this helps attract higher-quality employees.

Providing foundational education can go a long way to increase adoption and improve utilization of these tools. Because even if employees have a baseline familiarity of FSAs and HSAs, consumer surveys show that confusion persists, and this can lead to missed opportunities and savings. Maximizing the financial value of FSAs and HSAs calls for clear, consistent employee education about the differences between these accounts and how they can be used throughout the year to save. Here are four things your employees should understand. 

How to reduce taxable income with an FSA or HSA.

Employees can reduce their taxable income and save 30% or more on health-related expenses (depending on their individual income tax bracket) by enrolling in and contributing to an FSA or HSA. Take time to explain how this works and, if you offer an HSA, the triple-tax savings advantage that this account provides. Consider directing employees to interactive tools like an FSA Calculator or an HSA Tax Savings Calculator to determine how much they can save by enrolling in these accounts.

How to save for retirement with an HSA.

In addition to delivering immediate tax savings, an HSA also allows employees to increase their retirement income, as any money contributed to the account rolls over from year to year and can be withdrawn without tax or penalty for qualified expenses in retirement. An HSA Future Value Calculator can help employees project the future value of their account, while an HSA and 401(k) Maximizer can help employees determine how the accounts can collectively support their savings goals.

How to avoid an FSA forfeiture.

An FSA is a good fit for employees who want tax savings and immediate access to their tax-free funds to pay for upcoming health needs, but make sure employees understand that the FSA is an employer-owned account that comes with an annual spending deadline (for most organizations, this deadline is December 31). Being aware of their FSA deadline and how much money they have left in their account will help employees avoid forfeiting unused FSA funds at the end of the plan year. Fortunately, there are online solutions that can help employees avoid missing an FSA deadline. When it comes to deadlines, make employees aware of any option extensions your organization offers, like a grace period (March 15 for most organizations), a carryover option, or the option to continue to submit for reimbursement of expenses through the end of a run-out period.

How to save on everyday expenses or special health needs.

Based on consumer healthcare spending, Health-E Commerce estimates that the average household spends $1,600 each year on wellness products that are FSA and HSA eligible. Using FSA or HSA funds to pay for those expenses can be a key savings strategy for price-conscious employees. The IRS has expanded eligibility rules in recent years, so there is an increasingly broad range of products and clinical services that can be purchased with FSA and HSA funds. Even products like over-the-counter pain and allergy medications, menstrual care products, and high-tech health devices are eligible. This is a good opportunity to demonstrate how FSAs and HSAs can support the varying lifestyles of your employees. For example, employees who are new to the workforce may be more interested in using funds to support their health while pursuing outdoor adventures or when starting a family. Meanwhile, more established employees may use these funds for chronic condition management or to care for daily wellness while traveling. Encourage employees to use a searchable FSA or HSA eligibility list to see how these accounts can support their individual health and wellness needs.

As healthcare costs have increased over time, health and financial wellbeing have become inextricably connected. That’s why it’s essential that employers and benefits professionals don’t overlook the potential of FSAs and HSAs to support both areas of wellbeing for their company and their workforce. And remember, not only are employees who feel financially secure more productive, but when employees feel like their employer cares about their financial wellbeing, they are more likely to stay put, reducing the high cost of turnover.

Zack Peckham is CFO at Health-E Commerce, a family of online stores that includes HSA Store and FSA Store. Health-E Commerce serves the 70+ million consumers enrolled in pre-tax health and wellness accounts by exclusively selling FSA- and HSA-eligible products, thereby removing the guesswork of using tax-free funds. Health-E Commerce is a leader in consumer education and advocating for the expansion of product eligibility to meet changing consumer wellness needs.

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