This year marks the 10th anniversary of the creation of Health Savings Accounts (HSAs), tax-advantaged savings vehicles created as part of the Medicare Prescription Drug and Modernization Act that allow individuals with High-deductible Health plans (HDHPs) to save money for health-care expenses.
In 2014, HSA holders can choose to save up to $3,300 for an individual and $6,550 for a family (HSA holders 55 and older get to save an extra $1,000 which means $4,300 for an individual and $7,550 for a family) — and these contributions are 100% tax deductible from gross income.
Minimum annual plan deductibles are $1,250 for self-only coverage or $2,500 for family coverage. And annual out-of-pocket expenses (deductibles, copayments, and other amounts, but not premiums) cannot exceed $6,350 for self-only coverage and $12,700 for family coverage.
The HSA offers triple tax benefits. The money you contribute to an HSA is tax deductible, your contributions grow tax-deferred, and distributions spent on health care are tax-fee. Unlike your flexible spending accounts, your HSA money rolls over year to year, creating a stash of tax-free income in retirement.
That’s pretty powerful, but there’s a catch. To have an HSA, you must have the aforementioned HDHP. So the question becomes: How quickly will corporate America embrace the HDHP/HSA? According to the United Benefit Advisors’ 2012 survey of more than 17,000 health plans, nearly 15% of employers now offer HDHPs with HSAs.
The Employee Benefit Research Institute (EBRI) maintains an HSA Database on 1.5 million accounts with total assets of $2.7 billion as of December 31, 2013. They recently published HSA Balances, Contributions, Distributions, and Other Vital Statistics—A First Look at Data from the EBRI HSA Database on the 10th Anniversary of the HSA, the first report of its kind, that measures everything from average HSA account balances to annual distributions.
EBRI estimates the enrollment in HSA-eligible health plans ranges from 15.5 million to 20.4 million accounts holding $19.3 billion in assets as of December 31, 2013. Interestingly, seventy percent of these HSAs were opened since 2011. The average HSA balance at the end of 2013 was $1,766, up from $1,280 at the beginning of the year. And four-fifths of HSAs with a contribution also had health care claim during 2013, with an average distribution of $1,953.
Usage of HSAs is likely to keep increasing. In fact, EBRI estimates that 30 percent of larger employers will offer an HSA-eligible health plan as the only plan option by 2015. So, it’s likely even more employees will see an HDHP/HSA as an insurance option.
In unrelated matters, I thought I would share two photos below that I took of the fireworks in Washington, DC on July 4, 2014.
All of us at Bernhardt Wealth Management hope you had a happy and safe Independence Day!