Inflation, inflation, inflation. War, a pandemic, supply chain constraints, and other factors are coming together to produce the highest levels of inflation that the U.S. has seen since the 1980’s. At the end of March, the U.S. Bureau of Labor Statistics announced the consumer price index had increased 8.5% in the last year. People have been experiencing increasing prices across the spectrum of everyday goods and services from gas to groceries and dining out. To put recent inflation numbers into perspective, inflation averaged approximately 3.7% annually between 1960 and 2020, according to the federal reserve bank of St. Louis. The pricing pressure is also impacting people’s health care costs. According to the Retirement Healthcare Costs Data report from HealthView services, healthcare inflation has historically run between 2 and 2.5 times greater than the overall U.S. inflation. So, while people are trying to keep up with the inflation to consumer goods prices, they also need to be aware of how much more they are going to have to spend on health care.
So how is it possible to help your account holders keep up with the rising cost of health care? There are two main things that your institution can do to help your customers. If you offer a health savings account, then you have taken the first step. Health savings accounts (HSAs) allow your account holders to put their health care savings into a triple-tax advantaged deposit account. This can be great way to save and pay for current medical bills. However, saving only in an HSA deposit account does next to nothing to help your account holders keep up with or outpace inflation. According to HSASearch.com, the average APY earned by an account holder with an average HSA deposit balance (see 2021 Year-End Devenir HSA Research Report) is around 0.23%. HealthView services currently estimates that a 65-year-old couple that retired in 2021 will experience an average of 5.9% healthcare inflation throughout their retirement. That means that individuals who only have an HSA deposit account may earn close to a -5.67% real return annually. With that in mind let us discuss step two, providing HSA investments. The investment side of an HSA can save (no pun intended) your account holder’s health care savings. HSA investments allows your account holders to harness the power of global markets to give their savings a chance to grow faster and keep up with, or even outpace, health care inflation. In fact, if someone contributed $4,000 annually to their HSA investments for 20 years, and averaged a 7% return per year, they would have a little over $82,000 more than someone who left their money in deposits. Don’t settle for step one. If your institution is ready to take the next step towards providing a complete HSA solution, contact Devenir to learn how we can help your account holders invest in a healthy futureTM!
References
https://hvsfinancial.com/wp-content/uploads/2020/12/2021-Retirement-Healthcare-Costs-Data-Report.pdf
https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
https://www.bls.gov/bls/newsrels.htm#major
Investments are not FDIC/NCUA Insured and may lose value. The information above is intended to be used for educational purposes only and is not to be construed as investment or tax advice, or as tailored to any specific investor. Consult a financial advisor or tax professional for more information.