Medical services inflation moderated last year, but many Americans remain concerned about satisfying their current and future healthcare needs. Just look at a recent survey conducted by the Employee Benefit Research Institute (EBRI), which found that only 30 percent of U.S. workers are confident in their ability to afford healthcare without a financial hardship today. That falls to 26 percent when considered over a 10-year horizon, and just 23 percent during retirement. What is worse is that rising healthcare expenses have implications for financial well-being.
For example, of the one-half of surveyed workers that reported experiencing an increase in their healthcare costs recently, 26 percent said that they responded by decreasing their contributions to 401(k)s, IRAs, and other retirement plans. Forty-three percent lowered their contributions to other savings, e.g. an emergency fund, and more than a quarter (28 percent) said that higher medical care costs have made it harder to pay for basic necessities such as food, heating, and housing. Moreover, roughly a third of workers reported that they have used up all or most of their savings or have increased their credit card debt in response to greater healthcare outlays.
Twenty-two percent of respondents even had to take out a loan to help cover recent medical expenses, 27 percent were forced to delay retirement, and 15 percent made early withdrawals from a 401(k) and/or IRA. Unsurprisingly, 60 percent of surveyed workers reported that health insurance is “extremely important” when considering whether to stay in a current job or choosing a new job. Another tool for dealing with medical expenses that many employers provide access to is a health savings account (HSA). Indeed, an HSA is a tax-advantaged savings vehicle that encourages setting aside money for the future and helps people avoid having to dip into their long-term savings in the event of an unforeseen injury or ailment.
The main benefits of HSAs are that contributions are deductible from taxable income, contributions can grow (from interest or other capital earnings) tax free, and withdrawals are tax exempt as well, as long as for qualified medical expenses. HSAs have only been around since 2004 but millions of Americans are already utilizing these savings vehicles, and employee HSA contributions are up 9 percent in just the past twelve months. That is encouraging since a study by Fidelity Investments found that taking advantage of an HSA may be able to improve retirement readiness, and at the very least is “good for your overall financial position and indicative of good savings habits.”
Sources: EBRI, Devenir, Fidelity Investments, NAPAPost author: Charles Couch