PayFlex Engage Purchasing power for health and well-being
Table of contents
The $400 problem: How can your company help its employees with their financial stress?
Elaine* is a productive twenty-something. She has a steady job and an apartment in a not-too-expensive city. But after paying her rent, car loan, student loans, insurance and other basic living expenses, she has almost no money left. So what happens when she ends up in the ER with a fractured ankle – and $400 in out-of-pocket health care expense? She has to put the cost on her credit card and pay a high interest rate on the balance. She’ll spend the next few months a little bit distracted at work, worrying about the burden of debt she’s carrying from that unexpected bill.
Elaine isn’t unique. A 2018 study by the Federal Reserve1 found that 44 percent of Americans are cash-strapped. That’s a staggering amount of people. They can’t cover an unexpected $400 expense with their savings. In the same study, one-quarter of those surveyed said they have skipped medical treatment due to cost. This includes not filling prescriptions and not having dental work done. And even more alarming, 25 percent of Americans say they have nothing saved for retirement.
So it’s not surprising that almost 60 percent of Americans say money is their number one cause of stress2. And this was before the COVID-19 pandemic and the resulting economic downturn. This stress can take a heavy toll on employees. For instance, it can mean a host of related physical and mental health issues, which can drive up medical costs and decrease work productivity.
In today’s new reality, businesses have an even tougher job of keeping their workforce happy, healthy and productive. All while juggling the rising costs of health care.
This points to the importance of fostering a culture of trust among employees by providing a positive work environment and access to the right benefits and services. When employees feel their company is on their side, their happiness and productivity are measurably better3. So is their health. A high-trust environment can mean 13 percent fewer sick days and 50 percent higher productivity4. That’s impressive!
Getting employees well-being ready
What if you could help employees balance their near-term ability to pay for health care with the desire to have more control over their future well-being? Employers can start with products that help employees maximize their tax savings. For instance, Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA).
Features that promote sign-up also help, like contributing to or “seeding” the HSA. You can also consider employer contributions for those who are just starting to build their HSA balance.
Employers can also commit to ongoing communication and education about the benefits of these products. Such efforts are more effective than campaigns just at open enrollment time. They can go even further by having the right mix of programs and tools to support employees’ unique needs. The goal is to encourage healthy habits that help increase well-being and overall satisfaction.
The net result is employees who are:
- Better financially prepared
- More confident
- Mentally present at work
You’ll also foster a company culture of trust where the employees’ needs are a top priority. Such a culture helps attract and retain talent.
Redefining purchasing power
When most people hear the term “purchasing power,” they think about stretching hard-earned dollars. Or, making their money work harder for them. Examples might include getting more of an item for the same cost or using pre-tax funds to cover prescriptions and other health care costs. That certainly helps purchasing power.
Purchasing power goes beyond short-term gratification. It also considers the longer-term pay-off. Through the lens of health and well-being, this can have a significant impact on how employees spend – and save – for their health care needs. By offering the right benefits and providing education about the compound growth effect of saving today for retirement, employers can help empower their employees to increase purchasing power today. They can also proactively address any money worries for the future. Let’s take a closer look at the components of purchasing power.
- short-term purchasing power
- long-term purchasing power
- health and wellness
Short-term purchasing power
Pre-tax accounts like HSAs are important for employees’ financial health. But helping them understand the account features and benefits is crucial. It’s easy to start automatically deducting small amounts from each paycheck once employees see how much it positively affects their health savings. They’ll also appreciate how little the deductions change their actual take-home pay. HSAs have clear benefits over FSAs since unused funds carryover year-to-year and employees can invest in a variety of mutual funds.
Here are some ways to help your employees stretch their pre-tax health care dollars for the short-term.
- Consider benefits partners who can offer employees discounts on certain health care services or products. In these cases, employees can save on short-term costs by using pre-tax dollars on a discounted item or service. They can save more in their account to pay for more health care services, either in the near-term or long-term.
- Consider promoting the tools that already come with your benefits package. For example, a mobile app. This tool offers easy access to health care account balances on the go. And it allows an easy way to pay for eligible expenses or submit a request for reimbursement. In addition to savings, your employees need tools that easily fit into their daily lives.
Long-term purchasing power
A 2019 survey shows 75 percent of Americans plan their own finances2. They don’t use a financial planner. Whether they “go it alone” or work with a pro, most people include a 401(k) or Individual Retirement Account (IRA) in their plan. But for those with a qualifying medical plan, adding an HSA to their financial plan may not be top-of-mind.
Many people don’t plan for the cost of their health care needs in retirement. HealthView Services, a company that projects health care costs, says a 65-year-old couple in good health in 2019 should set aside $387,644 to pay for health care costs for the rest of their lives5. Even with Medicare, retirees could pay thousands a year in premiums with no dental or vision coverage, plus deductibles, copays and coinsurance. And medical costs typically rise faster than inflation.
Many consumers assume Medicare is “free.” This leaves them unprepared in retirement4. Planning ahead is key. As more people invest with their HSA, they can harness the power of compound returns. They may be better prepared by growing their assets on pace with the rising cost of health care.
So, while your employees might be tracking their 401(k) and IRA, the reality is that they may be able to increase their purchasing power in retirement by tapping into the unique savings potential of an HSA. (This assumes they have a high deductible health plan (HDHP) today.)
That’s because – unlike a 401(k) or IRA– an HSA lets your employees use those dollars for eligible health care expenses without paying taxes upon withdrawal. HSAs actually have multiple tax advantages.
- HSA members can contribute pre-tax dollars into their account and/or deduct post-tax HSA contributions from their taxable income.
- Pre-tax payroll deductions aren’t subject to the 7.65 percent FICA tax for Medicare/Social Security.
- HSA dollars can be invested like a 401(k). And the investment grows tax-free.
- There’s no income tax on withdrawals for eligible health care expenses.
Employees who use 401(k) or IRA dollars in retirement for health care costs have to withdraw funds and pay income tax on the withdrawal before paying health costs. HSA funds are not subject to withdrawal taxes if used for eligible health care expenses.
Most people tend to use their HSAs the same as a “use-it-or-lose-it” FSA. They put enough money in to cover their annual out-of-pocket health care costs but don’t invest their HSA funds. According to PayFlex data, the average person puts $1,300 in their HSA. The actual maximum annual contribution for an HSA in 2021 is:
- $3,600 for individuals
- $7,200 for families
Part of planning for the future with a PayFlex HSA is to help members invest their funds. Doing so helps one’s savings to grow tax-free at rates similar to a 401(k).
It’s common for employees to contribute to their company 401(k), often up to an employer match. But building up an HSA to cover future health care costs can significantly increase long-term purchasing power. And employers can do more to urge their employees to make such contributions. They can offer ongoing education on the high cost of future health care expenses and the tax benefits of an HSA.
How health and wellness can add to purchasing power
Spending and saving money wisely aren’t the only parts of purchasing power. Getting healthy and staying healthy can also have a big effect. Think of it as getting more healthy days per dollar invested. Investing time now in the well-being activities of your choice can really pay off. The pay off in short-term stress relief and health care costs is real.
In one study, by exercising moderately for 30 minutes, five times a week, a person will pay on average $2,500 less a year in health care costs related to heart disease1 than someone who does not. Over 10 years, that’s an extra $25,000 toward retirement. That’s the kind of savings that can really stretch anyone’s dollar
Small but powerful steps in the right direction
In our instant gratification society, longer-term planning can be a hard sell. You can take steps today to help educate and motivate your employees so they can begin to save smarter, get healthier and maximize their purchasing power. These steps can reinforce a company culture where employee well-being is a top priority:
- Get your company “well-being ready.” Create a work culture that puts the needs of your employees front and center. Do you have the right mix of benefits, programs and services to match their needs? Does your leadership team demonstrate the company’s commitment to employee well-being? By working with a consultative benefits partner who understands your company’s unique needs, you can reap the benefits of high trust from your employees.
- Communicate for impact. Communication and education is critical. But it’s only effective when it reaches the intended audience with the right message at the right time. What is the schedule of communication to employees outside of open enrollment? What approach are you taking with your communications for the various life stages of your employees go through? Or is your approach more a one-size-fits-all? Planning to start a family versus planning for retirement are two distinctly different needs. They require very different savings strategies.
For example, knowing when it may be most helpful to contribute more into an HSA versus a 401(k) can go a long way in increasing employee purchasing power. Not to mention easing some of their financial stress now and in retirement. A benefits partner with a personalized take on employee engagement can better support your company culture. We can help you focus on the individual needs of each employee.
- Help increase purchasing power. Are you maximizing your benefits program to help employees increase their purchasing power? Consider offering benefits that support employees’ physical, mental and financial well-being. PayFlex administers a full portfolio that can grow with employers’ health care strategies. We offer
- Health Savings Accounts
- Flexible Spending Accounts
- COBRA and direct billing
- Reimbursement accounts (health and well-being, commuter, tuition and adoption)
These offerings, plus exclusive discounts on health care products and a personal approach to messaging, can help employees on their personal well-being journey. For companies that offer an HDHP without an employer-sponsored HSA, PayFlex will offer an HSA for individuals later this year. This can give employees access to the tax-savings of an HSA without adding to your overhead cost.
Every organization is different. Companies of all sizes and industries can find value by focusing on employee well-being and purchasing power. The first step is finding a consultative benefits partner who can offer solutions that fit the unique needs of your employees.
What makes PayFlex different?
With PayFlex, your employees get the tools, support and guidance that help them on their well-being journeys. With personalized, relevant and timely information, they can make the right choices to fit their unique needs.
We’re not your traditional player in this field. We’re moving forward with innovative products to help PayFlex members plan, save and pay for personal well-being. We’re 100 percent dedicated to helping everyone reach their own personal goals by increasing their purchasing power.
*For illustrative purposes only. Elaine is not an actual PayFlex member.
1. Federal Reserve. Report on the Economic Well-Being of U.S. Households in 2017. Available at: https://www.federalreserve.gov/ publications/files/2017-report-economic-well-being-us-households-201805.pdf.
2. CNBC. Americans Are More Confident About Their Retirement Savings Now Versus Three Years Ago Pre-Trump, According to the Invest In You Savings Survey. Available at: https://www.cnbc.com/2019/04/01/americans-are-more-confident-about-their-retirement-savings-nowversus-three-years-ago-pre-trump-according-to-the-invest-in-you-savings-survey.html. Accessed June 11, 2020
3. PwC. PwC’s 9th annual Employee Financial Wellness Survey 2020 COVID-19 Update. Available at: https://www.pwc.com/us/en/industries/private-company-services/library/financial-well-being-retirement-survey.html. Accessed August 12, 2020.
4. Harvard Business Review. The neuroscience of trust. Available at: HBR.org/2017/01/the-neuroscience-of-trust. Accessed August 12, 2020.
5. CNBC. Medicare isn’t free. Here’s how much you may need to pay for it in retirement. Available at: https://www.cnbc.com/2020/06/11/ medicare-isnt-free-how-much-you-need-to-cover-costs-in-retirement.html. Accessed June 11, 2020.
6. CNBC. Retiring this year? How much you’ll need for health-care costs. Available at: https://www.cnbc.com/2019/07/18/retiring-thisyear-how-much-youll-need-for-health-care-costs.html. Accessed June 15, 2020.
7. The New York Times. What’s the Value of Exercise? $2,500. Available at: https://www.nytimes.com/2016/09/07/well/move/whats-thevalue-of-exercise-2500.html. Accessed June 15, 2020.
This material is for informational purposes only. It does not contain legal or tax advice. You should contact your legal counsel or your tax advisor if you have any questions or if you need additional information. Information is believed to be accurate as of the production date; however, it is subject to change. PayFlex cannot and shall not provide any payment or service in violation of any United States economic or trade sanctions. Visit payflex.com for more information.
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