It seems Americans are finally starting to understand and take advantage of tax-advantaged Health Savings Accounts, as today Fidelity Investments reported substantial growth in HSA usage.
The Fidelity Health Report shows that the company’s HSA assets increased 44% to a record-high $24 billion, making Fidelity the second-largest HSA provider in the country (according to Devenir Research’s 2023 Year-End HSA Market Statistics and Trends). That’s a 19% increase in funded HSAs year-over-year.
“Americans and their employers increasingly recognize how important access to comprehensive benefits, including tax-advantaged savings vehicles, can be for managing the financial impact of their health care decisions,” said Steve Betts, head of Fidelity Health. “Whether through an employer or on their own, we are committed to helping individuals build a stronger financial future as they manage the rising cost of health care.”
For more than two decades, HSAs have given Americans enrolled in HSA-eligible health plans a tax-advantaged way to save for short- and long-term health expenses, and the utility of an HSA has only increased as health care costs continue to rise. In fact, since Fidelity’s HSA debuted in 2005, the cost of health care has more than doubled (according to CMS data), making the tax-advantaged nature of HSAs more important than ever. Whether saving, spending, or investing, all strategies leverage the fundamental power of an HSA: the triple-tax advantage. This means there are no taxes on contributions, no taxes while money grows in the account, and any withdrawals for qualified medical expenses are tax-free.
The multi-tool for health expenses
As the number of HSA accounts continues to grow—with Fidelity seeing a 19% increase year-over-year to 3.3 million as of January 31, 2024—investors may wonder if there is a “right” way to maximize the benefits of their HSA. There is no one-size-fits-all approach: HSAs can be a multifunctional spending, saving and investing account, helping to pay for current qualified medical expenses; save in an “emergency fund” for unplanned medical emergencies; or invest over the long-term for health care expenses in retirement. Yet, even as employers are making progress in educating employees about the benefits of HSAs, only half of Americans are familiar with the features of the account that could help alleviate some of their biggest financial concerns.
“There is always work to be done,” said Karen Volo, head of health and benefit accounts at Fidelity. “We know employees with HSAs are significantly more likely to say they’re prepared to cover unexpected health care expenses. Providing as much education as possible can help employees build a more resilient savings strategy, now and in the future.”
HSAs build a stronger retirement
Recent Fidelity research found 17% of Americans say paying medical bills for a health condition is keeping them from reaching retirement goals, suggesting the high cost of health care is having an impact on retirement preparedness.
More than a third (36%) of respondents said being able to afford health care is among their top retirement concerns. The good news is that younger generations are increasingly taking advantage of the opportunity to invest in their HSA and build a nest egg for health care costs in their later years. In fact, according to Fidelity research, younger HSA holders—those ages 18-35—were more likely to be investors than account holders from older age groups. And Americans of all ages are taking steps to address the rising cost of care, with 71% saying they plan on saving more for retirement out of concern of the high cost of health care.
SEE ALSO:
• HSA Contribution Limits Increased Slightly for 2025
• HSAs See High Growth, Yet Key Issues Remain
• Gen Z Least Aware About HSAs
• 401(k) Account, HSA Balances Up for 2023
• How Younger Generations are Taking Advantage of HSAs
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.