Tax-advantaged benefit accounts -- including FSAs, HSAs and HRAs -- promise value to consumers, but a new Algeus report finds that despite being widely offered by employers, those accounts are often under-funded and underutilized.
The authors cite a report from earlier this year that found out-of-pocket health spending in 2017 is predicted to be $371 billion.
Yet just $86.3 billion of that spending will flow through tax-advantaged benefit accounts. This means, assuming an average tax rate of 30 percent for both state and federal, consumers will leave nearly $85 billion in tax savings unclaimed this year.
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The findings indicate that low consumer fluency plays a significant role in this scenario.
Part of the issue is that consumers are often undisciplined about saving in general, not just for healthcare. Slightly more than half, 51 percent, of consumers said they haven't established a rainy day fund and aren't disciplined about saving for retirement.
They also lack confidence about financial topics in general, with 48 percent saying they don't know how to build a financial plan. Four out of ten don't feel confident discussing financial topics.
More than that, consumers often struggle to grasp basic health and financial terminology and concepts, the report found, with 42 percent failing a basic true/false fluency test regarding their personal finances. Even more (50 percent) failed the health insurance fluency test.
That lack of knowledge extends to the tax-advantaged accounts themselves. It's even true for those who are already enrolled in them. Only 35 percent of existing health savings account holders knew enough about their accounts to pass a basic fluency test.
The news is troubling for hospitals, particularly those that are attempting to better communicate patient financial responsibility to their consumers. Hospitals can find some revenue cycle success by retraining staff to better communicate that responsibility, but those efforts could fall flat if patients don't possess the necessary vocabulary and grasp of their finances.
One out of two consumers can't forecast their out-of-pocket costs this plan year, and nearly six out of ten, 58 percent, don't know how much they need to save for healthcare costs in retirement, according to the report.