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HSAs poised for growth, despite health reform's failure

BY Gregory Seay

4/3/2017
Charles (Chad) Wilkins, president, HSA Bank in Milwaukee, Wis.
Health savings accounts (HSAs), financial conduits through which millions of Americans pay their health-related expenses, will likely stay in high demand despite Congressional Republicans' failed attempt to broaden their use and access as part of federal healthcare reforms, experts say.

One proposal under President Donald Trump's and Congress' failed American Health Care Act, which didn't garner enough support to pass the House, was to double accountholders' annual HSA contribution limits, to $6,500 for individuals, and $13,100 for families.

That move, along with broadening how HSA funds could be used, was seen as a potential boon for financial institutions like Waterbury-based Webster Financial Corp., that are major players in marketing and managing the tax-exempt accounts for consumers.

Despite the legislative setback, however, HSA industry officials and analysts remain bullish about the future growth of health savings accounts, particularly as workers continue to shoulder more of their own health expenses.

"With or without the repeal and replace of Obamacare we expect a 20 percent organic growth rate of HSAs in 2017 and anticipate the market growth continuing for the foreseeable future with HSA plans representing a significant percentage of the over 170 million commercially-insured in the United States," said Charles (Chad) Wilkins, president of HSA Bank in Milwaukee, Wis., which is owned by Webster.

According to human-resources consultancy Mercer's latest nationwide survey, half of companies with 500 or more workers offer HSAs to their employees, up from less than one in five in 2010.

Devenir, a Minneapolis firm engaged in HSA account investment and research, estimates HSA deposits will reach $37.6 billion this year and eclipse $44 billion in 2018, up from just $1.6 billion in deposits in 2006.

Wilkins, who has run HSA Bank since 2014 and is a Webster Bank executive vice president, said the last time there was this much demand for HSAs was when details of Obamacare were being hammered out and the law was signed in March 2010.

HSA Bank is one of the nation's oldest and third-largest issuer of HSAs, with more than 2 million accountholders and $5 billion in assets.

"We have some good momentum with regards to HSA accounts,'' Wilkins said. "We obviously think it's a great solution for the majority of the population.''

In 2015, Webster acquired JPMorgan Chase Bank's HSA business, adding $1.3 billion in deposits at the time, anticipating an explosion of the account's popularity.

HSA Bank works closely with healthplan partners to offer its HSA accounts to individual and corporate plan members, Wilkins aid. Also, many customers open accounts directly with HSA Bank. Webster Bank's offices also market HSA accounts.

HSA evolution

Health savings accounts first emerged in 1997, then known as "medical savings accounts,'' into which consumers contributed dollars that could be used later to cover health-plan deductibles or other qualified care expenses, said Devenir founder-President Eric J. Remjeske.

But a key drawback was that any unused MSA contributions during the year were forfeited. In Dec. 2003, as part of the Medicare Act overhaul, changes were implemented, primarily the shedding of the "use-it-or-lose-it'' feature that allowed consumers to roll over into the next year their unused contribution, said Remjeske. Along the way, MSAs were renamed "health savings accounts.''

Over time, consumers have increasingly embraced HSAs, particularly with the growth of high-deductible health plans, which force individuals to pay more out of pocket for care.

Meantime, many households, particularly wealthier ones, use their HSAs as retirement-savings accounts because contributions are tax free. Interest on HSA accounts, too, are tax free.

HSAs also have raised consumers' awareness of health-treatment options, Remjeske said. For instance, HSA accountholders are more apt to visit a private outpatient clinic when they have a sniffle, rather than seek much more expensive emergency-room treatment, "because they're using their own money.''

As part of the federal healthcare overhaul, HSA Bank and other account issuers were pushing, Wilkins said, to allow consumers to deposit their excess health-related tax credits, which would have been created under the Republicans' plan, into their health savings accounts.

That won't happen, at least for now, although Republicans still envision HSAs as a key aspect to reforming the healthcare system and making patients better consumers of care.