ETFs Designed to Battle Rising Healthcare Costs Get Spot in HSAs

Why simply save in a health savings account (HSA) account when you can invest? 

That’s part of the impetus behind healthcare consulting firm Milliman bringing its two exchange-traded funds, which launched earlier this year and are designed to help people keep up with the ballooning cost of healthcare, to HSA holders for the first time. Today, the company announced that the funds are now available to HSA Bank account holders. 

While HSAs’ popularity has climbed in recent years, only 11% of accounts hold invested assets, according to data from Devenir. HSAs come with a triple-tax advantage and don’t have the same use-it-or-lose-it rule that flexible spending accounts (FSAs) have. But treating them like simple savings accounts to stash cash instead of investing accounts to grow money for years or even decades is a missed opportunity, said Adam Schenck, principal and managing director of fund services at Milliman Financial Risk Management. An expensive one, too: A healthy 65-year-old couple retiring this year can expect to spend an average of $637,000 on healthcare expenses during the rest of their life, according to the firm’s data. 

“You should have a sleeve of your asset portfolio dedicated to [healthcare costs in retirement] because it is such an important basic need,” Schenck said. “The HSA is the perfect savings vehicle to be doing that.”

An Advisor’s Opportunity  

Financial advisors need to educate clients about HSAs and give them the opportunity to take advantage, said Megan Miller, senior wealth advisor at MAI Capital Management. Otherwise, clients may look elsewhere for an advisor who is taking that proactive approach. At least annually, her firm requests a statement from clients’ HSA plans alongside a statement from their 401(k) plans to help them maximize their investment opportunities and monitor contribution levels. 

“We suggest changes in allocation based on their overall risk perspective and help prevent asset classes from growing out of tolerance,” Miller said. “Perhaps most importantly, we regularly check to make sure that contributions don’t accidentally stay in cash.” 

Advisors can also help their clients find better opportunities: 

• About 69% of employers offer HSA investment options, according to recent data from the Plan Sponsor Council of America. That means more than 30% of employers don’t. 
• “We’re seeing more and more investment options being offered and more and more companies allowing for investments,” Schenck said. If an employer doesn’t, “you can move your HSA to a platform that allows investments.” 

SS Misconception. Many people believe that Medicare is free or almost free, which is generally not the case, Miller said. They’re surprised to learn how expensive Medicare and supplemental insurance is, and even more surprised by the expected cost increases and other healthcare expenditures in retirement, she added. “Setting aside money in the HSA gives people a way to set up a bucket to save for those medical expenses in retirement.”