Safeguarding HSA Funds: How and Why

Benefit Trends Executive Health June 22, 2020

The last decade has seen tremendous growth in the Health Savings Account (HSA) market. The increasing cost of healthcare has prompted many organizations to move to high-deductible health plans. So now HSAs have become even more prevalent. In fact, there are now over 25 million HSAs in the United States, up nearly 15 percent year over year.[i] According to a national survey in 2019, the value of these accounts is expected to crest $75 billion by the end of 2020.[ii]

HSA funds and the increasing cost of healthcare

According to the Bureau of Labor Statistics,[iii] the average American spends $5,000 annually on out-of-pocket healthcare costs. The increasing healthcare costs and the overall cost-shifting of the last decade means that HSA funds are depleted before the year runs out. For many account holders, this leaves a gap that must be paid out-of-pocket.

In fact, another recent survey[iv] found that 96 percent of HSA account holders spend their annual HSA contributions on everyday out-of-pocket healthcare costs. For example, doctor visits, dentistry services, prescriptions, over-the-counter medications and more. This means that the vast majority of HSA account holders are not able to realize the triple tax advantages of their accounts. How can account holders avoid draining their HSA accounts—and protect them for future use?

Preserving HSA funds

HSA account holders can certainly ensure they are maximizing their annual contributions to their HSAs.* These limits are typically increased slightly each year by the IRS and for 2021 are $3,600 for individuals and $7,200 for families.[v] Account holders aged 55 and older can also contribute additional funds (with limits) as “catch-up.”[*]

One of the most powerful ways of preserving these triple-tax-advantaged funds, though, is to reduce out-of-pocket spend. This is possible through employer-sponsored supplemental health insurance plans like ArmadaCare’s HSA-compatible solutions. These fixed indemnity plans can offer flexible ways to reduce the rising out-of-pocket spend for a range of both everyday and unexpected healthcare expenses. And because they are considered excepted benefits, they are not subject to ACA discrimination rules and can be offered to employees as determined or defined by the employer.

Advantages—even if there is no HSA

Not all employers offer an HSA program. ArmadaCare’s solutions can still be a tax-efficient* way to pay for healthcare expenses and offer financial efficiency for the employer, as they are often comparable in cost to a pay raise or one-time bonus.

With their triple tax advantages, HSA funds are a powerful way for account holders to save for future medical expenses as well as medical expenses in retirement. But realizing these benefits requires safeguarding funds so they can roll over year to year—and accrue over time. These advantages are out of reach for many with 96 percent of account holders draining their funds annually. Taking a different approach to preserving them can offer a smart way to save them for the future by reducing out-of-pocket spending.

Learn more about ArmadaCare’s HSA-compatible solutions here.

*This is not local, state or federal tax advice as each person and company is unique. It is recommended that you seek the independent counsel of a professional tax adviser. 

[i] Devenir HSA Survey

[ii] Devenir

[iii] Bureau of Labor Statistics

[iv] US News and World Report

[v] IRS

Subscribe to our blog

to get the articles delivered to your inbox

Feel Appreciated with ArmadaCare