Health savings accounts (HSAs) and medical savings account are a powerful tool to help you save for your current and future health care expenses. They offer triple tax benefits, flexibility, and portability. But not everyone is using them to their full potential. A new report from Inspira Financial reveals how different generations are using HSAs and what employers can do to boost their employees’ financial wellness.

Gen Z: The unaware savers

Gen Z is the youngest and most diverse generation in the workforce. They are also the most likely to face unexpected health care costs, as only 32% of them are aware that they would need to make an out-of-pocket payment for health care. This lack of awareness affects their saving habits, as one-third of them contribute nothing to their HSAs annually, and only 14% contribute over $3,000 per year. By missing out on the long-term benefits of HSAs, Gen Z is losing an opportunity to secure their financial future.

Millennials: The savvy investors

Millennials are the largest generation in the workforce and the most frequent users of health care and mental health services. They are also more engaged with their HSAs than Gen Z, as 29% of them contribute over $3,000 to their HSAs annually. Moreover, they are using their Health savings accounts (HSAs) as a tax-advantaged investment vehicle, with 21% of those eligible investing HSA funds. Millennials understand the value of HSAs for both health and retirement savings, and they are taking advantage of it.

Gen X and baby boomers: The experienced savers

Gen X and baby boomers are the most mature generations in the workforce and the most likely to have higher health care needs and expenses. They are also the most active savers in their medical savings account, as 43% and 47% of them respectively contribute more than $3,000 per year. Baby boomers have the highest cash and investment balances in their HSAs, averaging just over $19,300. Gen X and baby boomers are using their HSAs to prepare for their health care costs in retirement, which can be substantial.

How employers can help

The report also shows that employers have a key role to play in helping their employees use their HSAs effectively. Employers can educate their employees about the benefits of HSAs, provide matching contributions, offer investment options, and integrate medical savings account with other retirement plans. By doing so, employers can help their employees lower their health care costs, increase their productivity, and enhance their retirement readiness.

The report is based on proprietary data from more than 700,000 Inspira HSA accountholders, as well as primary research and third-party sources. You can download the full report here.

Health savings account vs. Medical savings account

A health savings account (HSA) and a medical savings account (MSA) are both tax-advantaged accounts that can help you save for qualified medical expenses. However, they have different eligibility requirements, contribution limits, and rollover rules. Here are some of the main differences between an HSA and an MSA:

• Eligibility: To open an HSA, you must be enrolled in a high-deductible health plan (HDHP) that is not Medicare. To open an medical savings account (MSA), you must be enrolled in a high-deductible Medicare plan. You cannot have both an HSA and an MSA at the same time.
• Contribution limits: For 2021, the maximum annual contribution for an HSA is $3,600 for individuals and $7,200 for families. For an MSA, the maximum annual contribution is 65% of the deductible for individuals and 75% of the deductible for families. Your employer may also contribute to your HSA or MSA, but the total amount cannot exceed the limit.
• Rollover rules: Any unused funds in your HSA can be carried over to the next year, with no limit on the amount or the number of years. Any unused funds in your MSA can also be carried over to the next year, but only if you remain enrolled in a high-deductible Medicare plan. If you switch to a different plan, you must withdraw your medical savings account funds and pay taxes and penalties on them.
• Tax benefits: Both HSAs and MSAs offer triple tax benefits: your contributions are deductible, your earnings are tax-deferred, and your withdrawals are tax-free if used for qualified medical expenses. However, if you use your HSA or MSA funds for non-qualified expenses, you will have to pay income tax and a 20% penalty (unless you are 65 or older, disabled, or deceased).