If financial advisers were asked to create a profile of the ideal prospective client, many might list young, college-educated workers with above-average incomes so they could help them grow their wealth over several decades. If that sounds like a river where you'd like to fish, the bait might surprise you: health savings accounts.
A new survey of more than 1,400 U.S. health care consumers found that HSA enrollees are generally healthier, wealthier and wiser than the average worker.
In fact, more than half of HSA enrollees are between the ages of 25 and 44; more than 60% are college-educated with at least one degree; and nearly 90% claim to be healthy or very healthy, according to the 2018 HSA Participant Profile survey published by Aegeus, one of the largest administrators of health care benefit accounts. The average household income for an HSA enrollee tops $72,000, according to the Alegeus survey.
HSAs offer a triple tax break: Contributions are tax-deductible, funds grow tax-free and distributions are tax-free if the money is spent on qualified medical expenses. Unlike the more familiar flexible spending accounts, which have a use-it-or-lose it feature if funds are not spent each year, unused HSA funds can accumulate over time and create a source of tax-free money to pay for health care costs in retirement — an area of growing concern for consumers. HSAs must be paired with a high-deductible health insurance plan.
The Alegeus report was commissioned to better understand how HSA participants use their accounts and how they engage in their health care compared to the general population. The study found that HSA participants are 38% more likely to make cost- or value-based decisions than the general population and 46% more likely to research and compare costs than the average worker. HSA participants are also 68% more likely to have a savings goal and 80% more likely to be saving aggressively for future health care costs.
Despite these positive characteristics, most HSA participants still don't get the full value from their accounts. Only 11% contribute up to the maximum allowable amount, and only 13% have invested their HSA savings for growth, according to the report.
"As consumer financial responsibilities for health care continue to grow, HSAs are the foundation for Americans to get better value for their health care dollars," said Steven Auerbach, chief executive officer of Alegeus, whose clients include health insurance plans, third-party administrators and financial institutions. The company administers benefit accounts for more than 30 million individuals and processes more than $9 billon in consumer health care payments each year.
By the end of 2017, HSAs held about $45 billion in assets, a 22% increase over the previous year, according to the Devenir Group, which also tracks the HSA market. The growth trajectory, which has assets essentially doubling every three years to a projected $64 billion by the end of 2019, has the potential to become a niche for financial advisers.
Now the prospects for the future growth of HSA could be even brighter. Earlier this month, the House Ways and Means Committee approved a roster of bills designed to increase HSA contribution limits and the number of people who qualify to use them.
One of the bills would increase the annual contribution limits — currently $3,400 for individuals and $6,900 for couples — by allowing contributions up to the account of the deductible and out-of-pocket limitations of the account holder's high-deductible health plan.
Another bill would allow seniors who are still working to continue to contribute to an HSA. Under current law, once an individual enrolls in Medicare, they can no longer make tax-deductible contributions to an HSA, although they can continue to take tax-free distributions for qualified medical expenses. Currently, people 65 and older can spend HSA funds for any purpose penalty-free, but non-medical expenditures are taxable.
But the legislation faces a tough road ahead. The fact that HSA expansion ideas are getting committee votes gives them momentum and the bills could be approved by the Republican-majority House. But they could stall in the Senate where Democrats, who assert that the bills would further undermine the Affordable Care Act, have enough members to filibuster.