Personal Finance

Consumers Have Saved More Than $100 Billion in Health Savings Accounts

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  • Health savings account assets eclipsed $100 billion in January, according to Devenir.
  • HSAs are available to consumers with a high-deductible health insurance plan. They carry a triple tax break.
  • Just 7% of accounts have at least some portion of the funds invested in mutual funds or other investments.

Health savings accounts eclipsed $100 billion by the end of January, according to Devenir, an HSA investment consultant, as more consumers use the tax-advantaged accounts to save for future health costs.

The firm forecasts HSA funds will hit $150 billion by the end of 2024.

"The growth is really accelerating in HSA assets," said Jon Robb, senior VP of research and technology at Devenir.

Consumers had about 32 million total HSAs by the end of 2021, an annual increase of 8%, according to a semiannual study published by the consulting firm.

Assets had grown to $98 billion as of Dec. 31, 2021, up 19% from the prior year, and hit $100.7 billion as of Jan. 31.

Federal law established HSAs in 2003.

The accounts are available to consumers with a high-deductible health plan and allow for savings in a bank-like account or investments in order to fund future health-care expenses.

Companies began adopting high-deductible health insurance plans for their workers more regularly over the past decade, Robb said. They help organizations save money by shifting more costs onto employees. These plans carry a lower monthly premium for consumers, but leave them on the hook for larger out-of-pocket bills before cost-sharing components kick in.

HSAs carry a triple tax advantage for consumers: Contributions aren't taxed going in, the money grows tax-free and withdrawals don't incur income tax if used for qualifying medical expenses. Consumers' balances roll over each year.

By comparison, 401(k) plans offer a two-tier tax break: on investment growth and, depending on the type of 401(k), on funds either going in or coming out of the account.

Financial experts generally recommend paying for current health costs out of pocket and investing HSA funds, if possible. That gives time for the money to grow to cover likely higher health costs in retirement age. Consumers can even use HSA money to reimburse themselves later for out-of-pocket health-care bills, if they keep the receipts as proof.

However, just 7% of all accounts have some of their money invested in mutual funds or other investments — suggesting most consumers use HSAs as a spending rather than savings account.

"A lot of people don't have the ability to pay for things out of pocket and hold onto the receipt," Robb said.

"It's still a small percentage that are investing," he added. "That number has been growing rapidly over the last few years."

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