The market for health savings accounts is booming, experts say, as the high-deductible plans that they are designed to fund grow in popularity among employers.
In early May, Fidelity Investments reported a 53 percent increase in HSAs being opened in 2012, bringing the number of individual accounts administered by the company to 182,000 up from 119,000 at the end 2011. This kind of growth reflects a national trend. According to America's Health Insurance Plans, a Washington D.C.-based trade association, the number of people covered by an HSA paired with a high-deductible health plan, or HDHP, climbed from 1 million in 2005 to 11 million in 2011.
And as more employers make HDHPs their sole health benefit option, HSAs will continue to grow, says Steve Wojcik, vice president of public policy for the National Business Group on Health, a coalition of large employers based in Washington.
"As more employees were priced out of other types of coverage, HDHPs and HSAs became more popular," he says. "And more and more employers are looking to HDHP/HSAs as the only option available, what we call full replacement."
According to the 2013 Towers Watson/National Business Group on Health employer survey, the number of companies offering an account-based plan as their only option rose from 9 percent in 2012 to 12 percent this year, a figure that is expected to double in 2014.
Wojcik says that high-deductible plans are popular because they can lower health insurance premiums for both employers and employees. HSAs provide employees a way to set aside tax-free dollars to pay for medical expenses that HDHPs don't cover. Unlike a health reimbursement account, another tax-advantaged account used to pay for health care expenses, an HSA is controlled by the employee who is free to invest the money, which carries over year after year. And many employers help fund these accounts. Unlike an HRA, which is employer-funded and -controlled, if workers quit, they can't take the money with them.
Will Applegate, vice president of HSA products for Fidelity Investments, says that another big advantage of these accounts is that employees can use them to save for health care expenses after retirement. Fidelity promotes HSAs as a way to save for future health care costs.
Applegate says the average couple will need about $240,000 to cover the costs of health care after retirement. He says that saving in an HSA provides employees with a tax-advantaged way to help prepare for these costs.
"An HSA is one of the most tax-efficient vehicles out there," he says. "The contributions and earnings are tax free and withdrawals are tax free. About 85 percent of our clients contribute to these accounts, and the average contribution is $700 for an individual account and $1,400 for a family."
The 2014 HSA annual contribution limits and out-of-pocket maximums will go up slightly from 2013, according to a May 2 notice from the Internal Revenue Service. The HDHP minimum required deductibles remain the same as 2013.
- Annual contribution limits: $3,300 for self-only coverage and $6,550 for family coverage.
- HDHP minimum annual deductible: $1,250 for self-only coverage and $2,500 for family coverage.
- HDHP out-of-pocket maximum (deductibles, copayments, and other amounts, but not premiums): $6,350 for self-only coverage and $12,700 for family coverage.