Love or hate the new GOP health care bill (and it appears those really are the only two choices) one thing is certain—health saving accounts are happy.
Or rather, advisors and providers who offer the heath and investment vehicle are smiling.
Provisions of the American Health Care Act, which passed the House by a narrow 217-213 vote May 4, “will nearly double the contribution limits for health savings accounts and give people more flexibility in how they can spend money in these tax-advantaged accounts,” according to CBNC’s Tom Anderson.
When lawmakers revamped the American Health Care Act after a disastrous initial rollout, the provisions dealing with the expansion of health savings accounts remained intact.
Key lawmakers in the debate are supportive of boosting the benefits of HSAs. For example, Anderson notes Senate Finance Committee Chairman Orrin Hatch, R-Utah, sponsored legislation earlier this year that would increase HSA contribution limits the same way as the American Health Care Act.
However, boosting benefits for health savings accounts is not a cheap proposition, Anderson warns. Congress’ Joint Committee on Taxation estimates provisions in the American Health Care Act that expand HSAs will cost $19 billion through 2026. But whatever happens in Washington, D.C., HSAs will become a bigger part of how many people pay for and save for health care, he argues.
“The American Health Care Act will increase the annual limit on HSA contributions to match the annual deductible and out-of-pocket expenses under a high-deductible health plan,” he writes. “That means the HSA contribution limit could be at least $6,550 for individuals and $13,100 for families beginning next year.”
The House bill also makes HSA rules more flexible by:
- Allowing both spouses to make catch-up contributions to one HSA beginning in 2018.
- Permitting qualified medical expenses incurred before HSA-qualified coverage begins to be reimbursed from an HSA as long as the account is established within 60 days.
- Letting people use their HSAs to pay for over-the-counter medications, which was restricted under the Affordable Care Act.
- Lowering the tax penalty if you use an HSA to pay for unqualified medical expenses to 10 percent, from 20 percent. (If you’re 65 or older, you can withdraw from an HSA penalty-free, but you do not get a tax break if you use the money for something other than health care.)
Overall, HSA use is on the rise. Like retirement, more Americans will be responsible for funding health care costs in retirement, one reason for the increasing interest.
The number of assets in HSAs “rose steadily” to $30.3 billion, a 16.7 percent increase year over year. Current projections show it continuing and the HSA industry is on track to reach $50 billion in assets by 2018, according to new information shared by 401(k)-provider giant Ascensus.
The number of HSAs, in particular, increased 22 percent in 2015, with 16.7 million open accounts, and are favored by savers at or near retirement.
Savers over age 55 account for 34 percent of the health savings assets on the Ascensus platform, suggesting that more savers are leveraging HSAs as a tool to increase overall retirement savings.
Additionally, savers over 65 are realizing the value of investing in HSAs, with the highest average in health savings of over $3,400.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
