The number of Health Savings Accounts (HSAs) is growing rapidly, with no signs of slowing down. According to research firm Devenir’s year-end HSA report, by the end of 2018, the number of HSAs grew to 25 million, a 13% increase from the previous year. At the same time, investment assets grew 19% to $53.8 billion. Devenir projects that by 2020, the number of HSAs will be at 30 million, with $75 billion in investment assets.
Growth Of HSAs
To decrease healthcare costs, more companies are offering high-deductible health plans (HDHPs), which can be paired with HSAs. In 2016, 58% of companies offered HDHPs, but that number increased to 70% by 2018.
HSAs save employers money by reducing premium rates and transferring more financial liability to employees. Since employers save money with HDHPs through higher deductibles, many of them offer and fund HSA contributions for employees to offset the burden of the deductible. For accounts receiving an employer contribution in 2018, the average contribution amount rose to $839 (up from $604 in 2017).
HSAs: Everybody Wins
In addition to potentially receiving employer contributions, employees also benefit from having an HSA because contributions are pre-tax (as is investment income from the contributions). Employees also own the HSA, so if they change companies, they can take the HSA along with them. Unlike a flexible spending account (FSA), funds from an HSA roll over from year to year. In addition, employees can make tax-free withdrawals for qualifying medical expenses. Amazon announced recently that it will allow consumers to use their HSA to purchase medical products like bandages and cold medicine from the site, providing even more ways to benefit from the account.
Healthcare costs have become the primary financial concern for employees. Healthcare costs continue to outpace wage growth, so employees are looking for more ways to manage their medical costs.
Anxiety or uncertainty about financial well-being can affect an employee’s mental and physical health as well, so it’s no surprise that both employers and employees see the advantages of the HSAs as part of an overall approach to wellness.
Underappreciated Long-Term Value Of HSAs
Even as many HSA holders consider the short-term benefits of their account, the long-term value may be even greater. HSAs are underutilized, experts say. Part of that underutilization comes from misconception about HSAs. For example, 70% of employees think that HSAs must be used in the current year, however, funds from HSAs can be rolled over year to year to add up to long-term savings.
This is particularly helpful for retirement, yet employees aren’t taking advantage. One survey indicates that when employees contribute to their HSAs, 65% of employees use the money for current health needs, with only 8% saving funds for retirement. Because the funds don’t accumulate, only 45% of respondents have more than $5,000 saved. Investing more fully into HSAs during their careers can help employees be more financially prepared for medical costs post-retirement.
It’s clear from the growth of HSAs that employers and employees are seeing the benefits of offering and enrolling in the plan, but companies can do more to educate employees on the short- and long-term advantages that HSAs offer and communicate that when employees create financial health, they also can increase their overall well-being.