As health care costs continue to rise and outpace inflation,
it’s not surprising that more and more people are turning to health savings
to complement high deductible health plans (HDHP).
According to research firm Devenir, HSA assets reached $4.2
billion by the end of 2015, representing a 33% increase from the previous year.
As saving for health care in retirement becomes more important, some firms
predict HSAs are set
to follow the growth of 401(k) plans.
Devenir projects that the HSA market will likely exceed $50
billion, accounting for 30 million accounts, by the end of 2018. Still, HSA adoption will face some of the same challenges 401(k)s
did in their infancy—and some unique ones.
Experts say plan sponsors and advisers can
best make the argument for HSAs by relaying so-called triple tax advantage, wherein contributions are made tax-free,
earnings on investments grow tax-free, and distributions to pay for qualified medical
expenses are tax-free as well.
With this advantage, HSAs can serve as powerful savings
accounts for health care expenses that can be combined
with retirement plans and other benefits programs as well as employer
matches to support a comfortable and healthy retirement.
These benefits, along with improving HSA portability, can’t
be ignored in light of estimated retiree health
care costs reaching record levels—even for healthy couples. Fidelity
projects a 65-year-old couple retiring in 2016 will need an estimated $260,000
to cover health care costs throughout retirement, a 6% increase
from last year’s estimate and the highest since the firm began making
projections in 2002.
NEXT: HSAs help
combat deductible growth