What Caused the Recent Jump in HSA Utilization?
Like food and shelter, healthcare is a basic human need. This being the case, it doesn’t make sense to pay high tax percentages on medical treatment. That is why the U.S. government introduced Health Savings Accounts in 2003. HSAs provide a means for members of high-deductible health insurance plans to receive tax-preferred treatment on money saved for medical costs. Though they have always been an effective cost-cutting solution, 77% of HSAs were not opened until 2013, an entire decade after their introduction. This was likely due to a lack of HSA awareness. More recently, there has been an enormous jump in HSA utilization, and it all started during the 2020 pandemic.
Devenir HSA Newsletter reports that, “At the end of 2021, Health Savings Accounts held $98 billion in assets…For a pre-pandemic perspective, it’s a +51% gain over the $65.9 billion figure at the end of 2019.”
It’s easy to understand why HSA awareness and utilization shot up during the COVID-19 pandemic—the healthcare landscape became increasingly frightening and confusing, and everyone wanted to ensure they had emergency healthcare funds. Even as the pandemic panic dies down, HSA utilization continues to increase. HSA holders are realizing something we’ve been trying to tell them all along—Health Savings Accounts are the best way to cut your medical costs!
Understandably, the main selling point for HSAs is that they provide a safety net in the case of emergency medical costs. We saw evidence of this in 2020 as HSA utilization increased by more than half. However, as the fear surrounding illness has somewhat subsided in the past year, we still see increases in HSA utilization. Why? Because even though the need for a safety net initially drove consumers to HSAs, they soon realized that HSAs provide several additional advantages.
HSAs allow tax-free contributions, growth, and withdrawals for qualified medical expenses. This triple-tax advantage sets HSAs on the throne when it comes to retirement savings vehicles.* 401ks allow tax-free contributions and growth, but not tax-free withdrawals. Roth IRAs allow tax-free growth and withdrawals, but not tax-free contributions.
No “Use-It-or-Lose-It” Policy
HSA funds roll over from year to year. Not only that, but they are 100% yours—they transfer with you from one employer to the next.
Did you know you are allowed to invest your HSA funds? Without a doubt, investments are the most underused HSA advantage. Only 9% of HSA holders invest a portion of their HSA funds. Why let your cash sit there when it can grow tax-free? Learn all about HSA investments here. And, if you are a MotivHealth HSA holder, click here to view investment options.
Only 2% of individuals are aware of an HSA’s key benefits. The three advantages listed above are vital for all HSA holders to be aware of. Here are a few other helpful facts:
- You can change your HSA contributions at any time.
While you do need to enroll in an HSA during open enrollment, you can change how much is contributed to your HSA from each paycheck at any time during the year. You don’t need to wait for a qualifying event like marriage or a job change. (Just note that you have until the day that taxes are due to fully maximize your HSA contributions for the year. HSA limits for 2022 are $3,650 for individuals and $7,300 for families. Learn more about maximizing your HSA here.
- Your employer can contribute to your HSA.
Many employers offer incentives or match contributions to employees’ HSAs. Taking advantage of this free money is an excellent way to grow your HSA.
- HSAs do not require minimum distributions.
A required minimum distribution, or RMD, is an IRS-mandated amount of money that a retiree must withdraw each year from a traditional IRA or an employer-sponsored retirement account, like a 401(k). But guess what? You don’t have to worry about that with an HSA!
- You can receive tax-free reimbursement down the road.
If you choose to cover a medical bill out of pocket, you can still receive a tax-free reimbursement for it later. Just be sure to hold onto all your receipts.
- HSAs can outlive their owners.
No one wants their life savings to go to the IRS after they pass. Fortunately, HSA funds can be transferred to spouses without any tax implications.
The Future of HSAs
HSA growth is going strong, and evidence suggests this pattern will continue. As inflation sets troubling new records (with healthcare inflation doubling general inflation), more and more U.S. citizens are investigating HSAs. Consumers are becoming increasingly aware that the cost-cutting benefits of HSAs extend even beyond the scope of healthcare.
*After the age of 65, HSA funds can be withdrawn for non-qualified medical expenses—just note that these non-medical withdrawals are taxed.
How has your HSA benefitted you? Comment below.