The number of Medical Savings Accounts burst over the 25 million threshold in 2018, and a number of interesting trends are still swirling around the industry. Health Savings Accounts, less commonly known as medical savings accounts, have been around since 2003. They have seen tremendous growth in popularity, though the growth rate has slowed a bit in recent years.
Let’s look at some of the numbers behind the industry. Then we’ll review some issues that could have an effect on Health Savings Accounts in the future.
Medical Savings Account by the Numbers
Not only did the number of HSAs top 25 million in 2018, but the amount of money held in those accounts topped $50 billion for the first time (reaching $53.8 billion by the year’s end). Also, the amount of earned income from those accounts surpassed $10 billion, according to the year-end report released by Devenir.
A mid-year report by Devenir also showed the number of accounts had topped 26 million and assets topped $60 billion. The 2018 figures represented a 13 percent increase in the number of accounts and a 19 percent increase in assets.
While those percentage gains have been slipping some in recent years, analysts cite a number of reasons. Primarily, the 30+ percentage point growth rates in the early years simply weren’t sustainable because of the limited number of workers who qualify to open a Medical Savings Account. Only workers who have high-deductible health plans are eligible to open Medical Savings Accounts.
The improving economy and tightening job market also could be affecting the growth in Medical Savings Accounts, as employers might be offering better health care plans as an incentive to hire and retain workers. Also, about 5 percent of workers transition to a lower-deductible health plan each year, either in recognition of the need for better health care or as their job or income situation improves.
The Devenir research did find that employers greatly increased their contribution to employees’ HSAs in 2018. This amount grew to an average of $839 in 2018, up from $604 in 2017. This is a 39 percent bump.
Devenir also projects that, by the end of 2020, assets held in Medical Savings Accounts will reach over $75 billion with approximately 30 million account holders.
By far, the greatest contributors to Medical Savings Accounts are the workers themselves. Companies contributed only 26 percent of funds in accounts in 2018, while 57 percent of the funds came from employees. Another 13 percent came from individuals contributing to their own accounts which were created outside the workplace. The remaining percentage came from IRA rollovers and other sources.
There’s one last number to report. In June, the IRS announced it would increase the maximum allowed contribution for Medical Savings Accounts by $50 for singles and $100 for families in 2020. That will put the maximum contribution for singles at $3,550 and at $7,100 for families.
Factors Impacting Health Savings Account Trends
One trend that could spur new growth in the Medical Savings Account market is the rising cost of Preferred Provider Organization plans, or PPOs. This is according to Paul Fronstin, director of health and research education at the Employee Benefits Research Institute.
In 2007, the deductible threshold for HSAs was four times the average deductibles on PPOs, but by 2018 the threshold is only twice the average PPO deductible. As those numbers draw closer together, employees will be more likely to encourage their employers to start HSAs.
Legislators also are pushing legislation that could make Health Savings Accounts more popular, including one plan to double the allowable contributions to HSAs. Another proposal that has gained traction is to allow people who reach Medicare-eligibility age to continue contributing to HSAs, which is currently prohibited.
Other ideas have been floated to expand the list expenses covered by HSAs. The new list might include fitness and wellness programs, over-the-counter medications, preventive programs for certain chronic conditions, home care expenses, and more.
Financial planners also are putting a greater emphasis on Health Savings Accounts with the realization that health care expenses become a major drain for retirees. While about 66 percent of the people who make a contribution to a Health Savings Account also withdraw from the account during the same year, more are finding the advantage of rolling the funds over for their retirement investment.
Currently, only about 4 percent of account holders are investing a portion of their HSA holdings, which would be a great way, especially for younger account holders, to increase their return on tax-free dollars. Participants in company-sponsored Health Savings Accounts have the option of rolling their funds into an investment account without penalty, as long as it’s still a Health Savings Account.
If you would like to learn more about how to start a Health Savings Account or how to get a greater return on the money you already have in an HSA, Bank.com’s partners could provide you the answers.