HAPPY BIRTHDAY HSAs!
|HEALTH SAVINGS ACCOUNTS (HSAs)
The attractiveness and establishment of HSAs continues to grow, as HSAs approach their 10th birthday. For many, it has long since been forgotten how they came to be, save for those “consumer driven health care geeks” like yours truly. While many realize that HSAs or Health Savings Accounts, replaced MSAs (Medical Savings Accounts) starting in January of 2004, how they came to be is rather interesting, if not disjointed. Actually, HSAs were created by the very law that gave us the largest expansion of Medicare since its origin in 1965 – the Medicare Prescription Drug Improvement and Modernization Act of 2003 (later referred to as the MMA), signed by then President George W. Bush on December 8, 2003. HSAs offer a significant improvement over their predecessor – MSAs – on several levels; not the least of which was a significant increase in the amount of money that could be set aside, tax preferred in the account, for future health care related use.
This week’s blog post is a “celebration” of HSAs (see previous reference to “CDH Geek”), by sharing some insights on the numbers, their application, and their future.
While still relatively young (10 years), HSAs have grown to become a formidable financial services tool, with an estimated $18.1 billion in assets, held in more than 9.1 million accounts (source: Devenir). And interestingly, both account balances and contributions continue their gradual growth:
· Average balances grew from $1,879 to $1,981 from the end of 2012 to the midpoint of 2013, a roughly 5% increase.
· Total contributions to HSAs are estimated to have reached $16.7 billion, from June 2012 to June 2013, with account holders retaining about 23% of those contributions.
· HSA investment assets reached an estimated $2 billion in June of 2013, up 14% from the end of 2012, and up 26% year over year. (Note: HSA holders have many options as to how and where to hold their money. Some choose to invest their HSA dollars in account types that have the potential to yield higher returns, yet offer less accessibility to the funds)
· The average “investment” HSA account holder has a total balance of $10,484
Contrary to early reports indicating the Affordable Care Act would lead to an end of the HSA era, they continue to surge in popularity and growth. HSAs, coupled with required qualified high deductible health plans (QHDHP), offer perhaps the single most successful effort to reduce unnecessary health care consumption in history. The health care financing and delivery sectors have recognized for years that there is more savings to be realized on the “demand” side of health care, versus the “supply” side. The key is to get the health care consumer engaged in the purchase/consumption of health care, and no other strategy to accomplish this goal has proven more successful than HSAs.
The Employee Benefit Research Institute (EBRI) analyzed 5 years worth of claims data associated with a large, Midwestern employer that adopted a QHDHP and associated HSA as a full replacement to its traditional health plan option. The findings? In the first year, health care spending declined 25%, or $527 per person, in the aggregate. Similarly, employee benefits firmTowers Watson recently announced that companies in which 50% or more of workers have HSAs and other consumer directed benefits report total costs per employee that are more than $1,000 lower than companies without these types of plans. Towers Watson also recently revealed survey results which suggest that 80% of companies will offer HSAs and accompanying high deductible plans, in 2014.
A recent article I read (Mayer, Kathryn. (2013, September 11). Seven Reasons HSAs are taking off.) listed seven (7) reasons for the growth of HSAs:
1. High Health Care Costs
2. Rebounding Economy
3. Increasing Consumer Involvement
4. Tax Savings
5. The Affordable Care Act (ACA)
6. Large Employers are on Board
7. Big Savings