Health Savings Accounts Surged in 2015

Assets in heath savings accounts (HSAs) totaled more than $30 billion in assets at year-end 2015, a year-over-year increase of 25% for HSA assets — and HSA investment assets increased even more.

HSA investment assets reached an estimated $4.2 billion in December, up 33% year over year, according to the 2015 Year-End Devenir HSA Market Survey. The average investment account holder has a $14,035 average total balance (deposit and investment account).

The number of HSA accounts rose to 16.7 million, a year-over-year increase of 22% for accounts for the period of Dec. 31, 2014 to Dec. 31, 2015.

During 2015, health plans continued as the leading driver of new account growth, accounting for 36% of new accounts. HSA providers are projecting HSA asset growth of 22% in 2016, and Devenir projects that by the end of 2018 the HSA market will likely exceed $50 billion in HSA assets covering almost 30 million accounts.

HSA Advantages

With retirement security of growing concern, and paying health care expenses in retirement a large part of that concern, HSAs offer account owners a number of advantages:

  • Contributions reduce taxable income.
  • Earnings on the account build up tax free.
  • Distributions for qualified expenses from the account are not subject to taxation.

The tax treatment is different from a traditional retirement savings plan, such as a 401(k) or individual retirement account (IRA), where contributions reduce taxable income but distributions of original pre-tax and employee contributions are taxed along with subsequent investment returns; and also different from a Roth 401(k) or Roth IRA, where there is no tax advantage for the contributions, but the subsequent account growth and distributions are not taxed, as long as certain holding periods are attained.

As a result, a recent analysis by the nonpartisan Employee Benefit Research Institute (EBRI) notes that some individuals might even find using an HSA as a savings vehicle for health care expenses in retirement more advantageous from a tax perspective than saving in a 401(k) plan or other retirement savings plan. However, as the EBRI report explains, there are other factors that should be weighed against these tax advantages, including the potential loss of employer matching contributions to a 401(k) plan, and the need to pay medical expenses incurred prior to retirement on an after-tax basis using money not contributed to their HSA.

The Devenir survey was carried out in January, 2016 and primarily consisted of top 100 HSA providers in the health savings account market. All data was requested for the period ending on Dec. 31, 2015.

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