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Who are HSA Users?

The ideal prospective client that financial advisers would generate would undoubtedly show young, college-educated workers with above-average incomes since this prospect gives the advisers the opportunity to assist the client with growing their wealth over several decades.

A recent survey of over 1,400 health care consumers, indicated that those using tax-advantaged Health Savings Accounts (HSAs) are younger, richer and better educated. Therefore, HSAs are a very real avenue to pursue according to a 2018 HSA Participant Profile survey published by one of the largest administrators of health care benefit accounts which indicated:

  • Over half of HSA enrollees are between the ages of 25 and 44
  • The average household income for an HSA enrollee tops $72,000
  • Over 60% are college-educated with at least one degree
  • Almost 90% claim to be healthy or very healthy

HSAs offer a triple tax break:

  1. Contributions are tax-deductible
  2. funds grow tax-free
  3. distributions are tax-free if the money is spent on qualified medical expenses

Flexible spending accounts have a use-it-or-lose it feature if funds are not spent each year. On the other hand, while HSAs must be paired with a high-deductible health insurance plan, unused funds are allowed to accumulate over time and create a source of tax-free money to pay for health care costs in retirement — an area of growing concern for consumers.

The Aegeus report was done to compare the general population to how HSA participants use their accounts and how they engage in their health care. The study found:

  • HSA participants are 38% more likely to make cost- or value-based decisions than the general population
  • 46% more likely to research and compare costs than the average worker
  • 68% more likely to have a savings goal
  • 80% more likely to be saving aggressively for future health care costs

However, according to the report. most HSA participants still don’t get the full value from their accounts:

  • Only 11% contribute up to the maximum allowable amount
  • Only 13% have invested their HSA savings for growth

“As consumer financial responsibilities for health care continue to grow, HSAs are the foundation for Americans to get better value for their health care dollars,” said Steven Auerbach, chief executive officer of Aegeus, whose clients include health insurance plans, third-party administrators and financial institutions, administers benefit accounts for more than 30 million individuals, and processes more than $9 billon in consumer health care payments each year.

The Devenir Group, which also tracks the HSA market, reported that by the end of 2017, HSAs held about $45 billion in assets — a 22% increase over 2016. This growth pattern — basically showing assets doubling every three years to a projected $64 billion by the end of 2019, indicates a good possibility for HSAs to become an undertaking for financial advisers

To an even greater advantage, in July, the House Ways and Means Committee approved a roster of bills designed to increase HSA contribution limits and the number of people who qualify to use them:

  • One of the bills increases the annual contribution limits (currently $3,400 for individuals and $6,900 for couples) by allowing contributions to the account up to the deductible and out-of pocket limitations of the account holder’s high-deductible health plan.
  • Another bill allows seniors who are still working to continue to contribute to an HSA. (Current law states that once an individual enrolls in Medicare, they can no longer make taxdeductible contributions to an HSA, although they can continue to take tax-free distributions for qualified medical expenses.) Currently, people 65 and older can spend HSA funds for any purpose penalty-free, but non-medical expenditures are taxable.

HSA expansion ideas are getting committee votes and might very well get the approval by the Republican-majority House. On the other hand, majority-Democrats in the Senate, who assert that the bills would further undermine the Affordable Care Act, have enough members to filibuster.