HSAs in the Modern Workforce: How Millennials and Gen Z are Shaping HSA Usage

Health Savings Accounts (HSAs) have become an increasingly popular tool for managing healthcare expenses, particularly as high-deductible health plans (HDHPs) continue to rise. These accounts have been around for some time and their utilization is evolving rapidly, particularly among younger generations.

While HSAs are beneficial for individuals of all ages, Millennials and Gen Z are leveraging these accounts in unique ways that reflect their financial priorities and healthcare needs. Understanding how these younger generations use HSAs can provide valuable insights for employers looking to offer competitive benefits in today’s evolving workforce.

Understanding Health Savings Accounts (HSAs)

It might help first, however, to clarify exactly what a Health Savings Account, or HSA, is and how it works.

An HSA (Health Savings Account) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP).   

Key features of an HSA:

• Tax advantages: Contributions to an HSA are made on a pre-tax basis, reducing your taxable income. Additionally, withdrawals for qualified medical expenses are tax-free.   
• Investment potential: HSA funds can be invested, allowing them to grow tax-free over time.   
• Rollover: Unused funds roll over to the next year, unlike Flexible Spending Accounts (FSAs).   
• Retirement savings: After age 65, you can withdraw funds for any purpose, but you’ll pay income tax on the amount withdrawn.   

In essence, an HSA is a versatile financial tool that can be used to pay for current medical expenses and potentially save for retirement.

Understanding the Generational Divide

To grasp the differences in HSA usage, it’s essential to understand the unique characteristics of Millennials (those born between 1981 and 1996) and Gen Z (anyone born from 1997 onward). These generations have grown up in a world of economic uncertainty and rising healthcare costs.

They tend to be financially savvy and tech-oriented than previous generations. They also typically prioritize experiences over material possessions, and they are more likely to be entrepreneurs or work for startups than older generations.

Older generations, on the other hand, often view HSAs as a retirement savings vehicle. They are more likely to have traditional employer-sponsored health insurance plans with lower deductibles and out-of-pocket costs. Consequently, they may not have maximized their HSA contributions or fully understood the account’s potential.

How Millennials and Gen Z Are Using HSAs

Some of the major ways that these generational groups are utilizing Health Savings Accounts include:

• Investing for the Future: While HSAs offer tax advantages for medical expenses, younger generations are increasingly using them as investment accounts. With the ability to invest HSA funds, Millennials and Gen Z are seeing HSAs as a long-term savings vehicle for retirement. This shift is driven by factors such as delayed homeownership, student loan debt, and a desire for financial independence.
• Prioritizing Health and Wellness: Younger generations are more focused on preventative care and overall wellness. They are more likely to use their HSAs to cover gym memberships, nutrition counseling, and mental health services. This proactive approach to healthcare aligns with their values and can lead to significant long-term health benefits.
• Embracing Technology: Millennials and Gen Z are digital natives who prefer to manage their finances online. They are more likely to use HSA mobile apps and online platforms to track their spending, make contributions, and invest their funds. This tech-savvy approach makes it easier for them to stay engaged with their accounts and make informed decisions.
• Leveraging HSAs for Entrepreneurship: As entrepreneurship becomes more prevalent among younger generations, HSAs are playing a crucial role in managing healthcare costs. Self-employed individuals can use HSAs to cover their own and their family’s medical expenses, providing a valuable tax-advantaged benefit.

Let’s take deeper look at these and other aspects of HSAs for Millennials and Gen Z users.

Embracing HSAs as a Long-Term Investment Tool

Unlike older generations who may view HSAs primarily as a way to cover immediate medical expenses, Millennials and Gen Z are increasingly seeing HSAs as a powerful long-term investment tool. These younger workers are more likely to maximize their contributions and invest their HSA funds, treating them as an integral part of their retirement planning.

Why This Matters:

• Tax Advantages: HSAs offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. For younger generations, who are more financially literate and focused on building wealth, these benefits make HSAs an attractive investment option.
• Investment Growth: Many Millennials and Gen Z are using their HSA funds to invest in mutual funds, stocks, and other investment vehicles, allowing their savings to grow over time. This approach mirrors their broader interest in financial independence and early retirement (the FIRE movement, for example).

Key Takeaway: Employers should emphasize the investment potential of HSAs when communicating benefits to younger employees. Providing educational resources on how to invest HSA funds can help these employees maximize the long-term value of their accounts.

Prioritizing Preventive and Mental Health Care

Millennials and Gen Z place a strong emphasis on preventive care and mental health, reflecting their broader approach to wellness. Unlike older generations who may focus on covering acute medical needs, younger workers are more likely to use their HSAs for services like mental health counseling, wellness programs, and preventive screenings.

Why This Matters:

• Preventive Care Focus: Younger generations are more proactive about their health, seeking to prevent illnesses before they occur. They are using HSAs to pay for routine check-ups, vaccinations, and screenings, which aligns with their preference for maintaining long-term health.
• Mental Health Awareness: Mental health is a significant concern for Millennials and Gen Z, and they are more likely to allocate HSA funds toward therapy, counseling, and other mental health services. This marks a shift from previous generations who may have been less inclined to seek mental health care.

Key Takeaway: Employers should consider offering HSA-compatible health plans that cover a wide range of preventive and mental health services. Highlighting these options can attract and retain younger employees who prioritize these aspects of their healthcare.

Flexibility and Control Over Healthcare Spending

Millennials and Gen Z value flexibility and control in many aspects of their lives, including healthcare spending. HSAs offer a level of autonomy that resonates with these generations, allowing them to make decisions about their healthcare expenditures without being tied to a specific provider or insurance network.

Why This Matters:

• Healthcare Consumerism: Younger generations are more likely to shop around for healthcare services, looking for the best value rather than sticking with a single provider. HSAs provide the financial flexibility to do this, as funds can be used for a wide range of qualified medical expenses.
• Customization of Benefits: The ability to customize their healthcare spending through HSAs is particularly appealing to younger workers who may have diverse and evolving healthcare needs. They appreciate the control HSAs offer in allocating funds to the services they value most.

Key Takeaway: Employers can appeal to younger employees by promoting the flexibility that HSAs offer. Providing tools and resources to help employees manage their HSA funds effectively can further enhance their satisfaction with this benefit.

Leveraging HSAs for Financial Security

Financial security is a top priority for Millennials and Gen Z, who have faced economic challenges such as student loan debt, housing costs, and job market volatility. HSAs provide a means for these younger workers to build a financial safety net, particularly for future healthcare expenses.

Why This Matters:

• Emergency Funds: Many younger workers use their HSAs as an additional emergency fund, knowing that they can access these savings for unexpected medical costs. This approach reflects their cautious financial mindset and desire for security.
• Retirement Planning: With rising healthcare costs, Millennials and Gen Z are aware that healthcare will be a significant expense in retirement. By contributing to HSAs now, they are setting aside funds that can be used tax-free for medical expenses in their later years, complementing their retirement savings in 401(k)s or IRAs.

Key Takeaway: Employers should highlight the role of HSAs in providing financial security, both for immediate healthcare needs and long-term planning. Offering financial wellness programs that include HSA education can help employees of all ages make informed decisions.

Technology-Driven Engagement

Millennials and Gen Z are digital natives, and they expect technology to play a significant role in managing their finances, including their HSAs. They are more likely to use mobile apps and online platforms to track their HSA contributions, investments, and healthcare spending.

Why This Matters:

• User-Friendly Platforms: Younger workers prefer HSA platforms that are intuitive, mobile-friendly, and integrated with other financial tools they use. The ability to manage their HSA on the go is crucial for this tech-savvy generation.
• Data-Driven Decisions: Access to real-time data and analytics helps these generations make informed decisions about their healthcare and investments. They are more likely to engage with HSA providers that offer robust digital tools and resources.

Key Takeaway: Employers should partner with HSA providers that offer cutting-edge digital platforms to meet the expectations of younger employees. Promoting these technological features can increase engagement and satisfaction with HSA benefits.

Millennials, Gen Z, HSAs, and Small Businesses

As Millennials and Gen Z continue to shape the modern workforce, their unique approach to HSA usage reflects broader trends in financial priorities, healthcare needs, and technological preferences. By understanding these trends, employers can tailor their benefits offerings to attract and retain top talent from these younger generations. HSAs, with their flexibility, tax advantages, and investment potential, are a key component of a competitive benefits package that resonates with the values and priorities of today’s workforce.

Understanding how younger generations are using HSAs can benefit small businesses in several ways. By offering HSA-compatible health plans, employers can attract and retain top talent. They can also educate employees about the benefits of HSAs and provide resources to help them maximize their accounts. Additionally, small businesses can leverage HSAs as a competitive advantage by offering employer contributions to encourage employee participation.

Helping You Find Healthcare Solutions for All Your Workforce Members

The way Millennials and Gen Z are using HSAs is transforming the healthcare landscape, and as these generations continue to shape the workforce, it’s essential for employers to stay informed about the latest trends in HSA usage.

By embracing the potential of HSAs, small businesses can help their employees achieve financial security and better health outcomes.

J.C. Lewis Insurance Services is committed to helping small businesses navigate the complexities of healthcare. Contact us today to learn more about how we can help you offer competitive and cost-effective health insurance plans, including HSA-compatible options.