According to a report from the Employee Benefit Research Institute, the average balance for health savings accounts or HSAs recently grew from less than $1,500 to nearly $2,000 on average. This was an increase of more then 35 percent in 2014 alone.
What Are HSAs?
A health savings account is a custodial account or tax-exempt trust that individuals set up to pay for health care. There are tax deductions for any contributions made to the accounts, and any distributions for costs related to medical care do not have to be reported as taxable income. In addition to this, distributions may be obtained without tax consequences for a higher premium. Taxes are not assessed to capital earnings or interest as it builds up in the account.
Why Are HSAs Important?
These health plans are important because of their consumer-driven nature. More employers are realizing this every year, and the amount of employers planning to add them or offer them as the only option for workers continues increasing at a consistent rate. Within the next decade, they are expected to be one of the most vital parts of employer health benefits.
The Rise Of HSA Plans
About 10 years ago, HSAs were rarely used and were not very popular. By 2014, experts estimated the number of HSA policyholders and related participants to be about 17 million. The average annual HSA contribution was about $2,000 in 2014. For HSAs with employer contributions, the average contribution was about $1,000 per year. HSAs with employer or individual contributions made up about 85 percent of assets and 70 percent of accounts in 2014. Only a small percentage of the accounts were at a zero balance when the year ended.
HSAs With Investment Assets
According to experts at EBRI, 2014 was the first year for finding usable data about investment assets from the HSA database. Although less than 10 percent of the accounts in the database had investment assets attached to them, the ones that did have investment assets had higher balances when the year ended. Nearly 40 percent of those accounts had balances of $10,000 at the end of the year. However, only a small fraction of accounts without investment assets had that high of a balance when the year ended. For accounts opened in 2010 with investment assets, the average year-end balance was over $6,500. The average year-end balance for the same type of account opened in 2005 was over $19,000.
Addition HSA Survey Findings
According to EBRI’s research, about 80 percent of HSAs with contributions also had health care distribution claims in 2014. Of the accounts with claims, the average amount for a claim distribution was more than $1,900. The majority of larger distributions for health care claims were given to adults between the ages of 55 and 64. With newer accounts, the rate of claims was higher than it was for older accounts.
HSAs are a valuable part of a benefits package. With the changes brought about by the Affordable Care Act, the benefits of HSAs are even more apparent. Strategically placed within a benefit offering and combined with sound health management practices, HSAs are an effective long term cost management tool that companies should employ.
Alan Wang is the President of UBF and serves as the lead consultant. He has delivered the UBF solution set throughout the world and is highly regarded for his areas of expertise. You can follow him on Twitter @UBFconsulting.