Data from recent years shows that Health Savings Accounts are booming and factors indicate continued growth in years to come.
Since 2013, employee participation in Health Savings Accounts (HSAs), which enable individuals and families to use tax-free money to pay for eligible health care expenses, has increased by nearly 54%. In 2015, estimated HSA enrollment totaled 19.7 million participants. By January, 2016, it had increased to 20.2 million, and this upward trend shows no signs of slowing down in 2017.
How HSAs Work
For employees to be eligible for enrollment, the company must offer an HDHP with minimum annual deductibles of at least $1,300 for individuals and $2,600 for families.
Once the employee enrolls in a HSA-eligible HDHP and establishes an HSA, they fund the account through contributions made pre-tax from each paycheck. Throughout the year, participants can withdraw available money from their HSA to pay for qualified medical expenses.
What’s driving the rapid growth in HSA enrollment?
Health Savings Accounts are booming for several reasons.
First, more employers are embracing voluntary benefits as a way to attract and retain employees while managing their benefit program costs more effectively. Many are also switching to high-deductible healthcare plans (HDHPs), which are a requirement for HSAs, as a way to lower premiums and save money.
At the same time, employees, especially younger ones, are looking for ways to reduce their own healthcare costs. One strategy involves increasing contributions to their HSAs and other flexible spending accounts to help pay for medical expenses. Case in point, Millennials have increased their contributions to these tax-advantaged accounts by nearly 31%.
Why are More People Enrolling in HSAs?
HSAs offer many advantages to participants, including:
- Triple tax savings. All HSA contributions are pre-tax. Withdrawals from the account are tax free (as long as they are used for eligible medical expenses). Interest and investment income earned on the account are also tax-free.
- More affordable healthcare. HSAs can be used for a wide-range of approved medical expenses, including deductibles. Plus, enrolling in an HDHP means lower monthly insurance premiums than a traditional health plan.
- Permanent ownership. In contrast to most benefit accounts, employees do not forfeit their HSAs (or the funds) upon changing employers or retiring. They own the account for life.
- Employer contributions. Employers are not required to contribute to employees’ HSAs, but they can do so if they wish. This increases the amount of tax-free money to pay for healthcare expenses.
A Quasi-Retirement Account
For many, the biggest benefit comes from using an HSA to augment their retirement plan. If you have low medical expenses or the resources to set aside money, savings in your HSA account grow tax-free. You can still take money out at any time to pay for qualified medical expenses.
There are additional advantages that come with getting older. The year a participant turns age 55, he or she can make a ‘catch-up’ contribution of an additional $1,000 over the annual limit. And after age 65, you can use the funds for any expense, including supplementing your retirement income; however, distributions for non-medical expenses are taxed as regular income.
President Trump has come out in favor of expanding HSAs so they can play a larger role in helping Americans purchase their own health care coverage. And if Congress replaces or significantly amends the Affordable Care Act, HSAs could have a bigger impact on the ability to fund your healthcare expenses.
If you’re eligible for an HSA, but have not established an account, it’s time to consider these tax-advantaged plans.
Summit HSA is a web-based HSA administration platform that makes HSA management easy for TPAs.