Health Savings Accounts Help Gen Z Manage High Healthcare Costs

October 31, 2019 - High healthcare costs are keeping young adults from saving for the future, recent data from CITE Research, commissioned by Lively, shows, making the case for health savings accounts (HSAs).

Seventy-nine percent of Americans agree the rising cost of healthcare prevents young adults from Generation Z (18 to 24 years old) and the Millennial generation from securing their futures financially, the survey shows.

“The data shows that young people aren’t as financially independent as their parents may have been - homeownership is down and middle-class life is harder to attain,” said Shobin Uralil, chief operating officer and co-founder of Lively. “While buying a home is not essential to success, being able to take care of yourself throughout your life is. You may be stuck in a cycle of savings for future finances, while healthcare costs continue to increase.”

The study identified a couple of areas in which healthcare spending restricted young adults’ abilities to attain financial independence or even cover basic needs.

Young adults are avoiding preventive care costs, the study found. Thirty-eight percent of individuals say they will only make a visit to their primary care provider if their condition is severe, choosing not to invest in preventive care. This is the highest percentage among the age groups surveyed.

READ MORE: Amazon Will Accept Health Savings Accounts, Flex Spending on Products

Health and wellness purchases are among the top expenditures that young adults cut when trying to save, with 27 percent of Gen Zers saying they have done so. Almost six out of ten—59 percent—Gen Zers say they avoided seeing their provider due to the high expenditure associated with the visit. Sixty-three percent did not follow through on their providers’ recommendations due to the treatment costs.

Across generations, Americans are not prepared for surprise billing. However, young adults are less likely to feel prepared for surprise medical bills than adults 65 years of age and older.

Seventy-four percent of older adults say they are financially ready to handle bills for unexpected injuries or illnesses. Around half of adults feel ready to cover an unexpected injury or chronic illness, or a sick child and 56 percent are prepared to care for an aging or sick parent.

But healthcare costs have a more far-reaching impact on Generation Z’s spending habits outside of maintaining their health.

“When it comes to preparing for a successful financial future, saving for retirement and paying down debt should be top of the list, yet for nearly one in four Americans, these actions are stifled by the cost of healthcare today,” said Uralil. “Medical expenses are already the number one reason for bankruptcy in the United States, and one of the most costly parts of retirement itself.”

READ MORE: Consumers Maintaining Positive Health Savings Accounts

Healthcare costs can influence young adults’ ability to save for retirement, take vacations, and eradicate debt. Thirty-three percent of adults, particularly women, decreased their spending on entertainment, activities, or hobbies due to healthcare expenditures. Nearly four out of ten women—36 percent—lessened their spending on fun activities, in contrast to three out of ten men. Overall, healthcare costs inhibited one out of four adults from going on vacation.

Adults aged 55 years and older did not face the same dilemma, however. They were the age bracket least likely to have their healthcare bills affect their hobbies, vacation time, or fun activities.

It comes as no surprise that healthcare costs are affecting any age group in this way, since the six percent upward trend in medical costs is evident across the industry. Having recognized this trend and their residents’ vulnerability, states like Texas and California are enacting policies to prevent these expenses from catching patients off guard.

To deal with these high and rising costs, the researchers offered several tips, central to which were HSA accounts. For 2019, these accounts can help Millennials and Gen Zers put aside up to $3,500 in pre-tax dollars for solely healthcare-related costs, the researchers pointed out. Families can put aside up to $7,000 for unexpected medical bills and health needs.

With compound interest, the initial amount that they contribute can grow with time. Furthermore, once an adult reaches 25 years of age, they can add another $1,000 to the maximum saving threshold.

READ MORE: High-Deductible Health Plan, HSA Enrollment Reached 21M in 2017

According to a recent survey by Morning Consult and CNBC Make It, Millennials and Gen Z are catching on to the potential benefits of HSAs. Seventeen percent of Americans have an HSA. Eighteen percent of whom are Millennials and 11 percent of whom are Gen Zers.

While the HSA is growing in popularity and has evident positive impacts, it also presents some drawbacks.

Specifically, a recent study by the Employee Benefit Research Institute found that while HSAs can effectively build up savings for healthcare spending purposes, employees with HSAs are also more likely to use the fund as they see it grow and pay for more healthcare services than they would without an HSA. The larger the HSA balance at the start of the year, the more healthcare services its account holder would use. Services included emergency department visits, blood tests, CT scans, and they cost more for the same service based on the amount in the employee’s HSA.

While the HSA may be a strong option to ensure that employees can afford healthcare expenses, researchers agree that employers must educate their workforce on how to use the HSA most effectively.