The Underutilization of Health Savings Accounts in the U.S.

Health Savings Accounts (HSAs) are powerful tools for managing healthcare expenses, offering significant tax advantages that can aid individuals in both the present and future. Yet, despite their potential benefits, HSAs remain underutilized by a significant portion of those eligible to use them in the United States.

What is a Health Savings Account?

Introduced in 2003, HSAs were created as a response to the increasing shift of healthcare cost responsibilities from employers to employees. These accounts allow individuals with high-deductible health plans (HDHPs) to save money for current and future medical expenses on a tax-advantaged basis. Contributions made to HSAs are deductible from federal taxes, and the account's earnings grow tax-free. Additionally, withdrawals for qualified medical expenses are not taxed.

Underutilization of HSAs

Despite the clear benefits, Health Savings Accounts are radically underutilized across companies both large and small. A study highlighted by JAMA Network found that about one-third of individuals enrolled in HDHPs did not have an HSA. Moreover, among those who did have an HSA, a significant number had not contributed to their accounts in the previous year​ (JAMA Network)​. This underutilization can be attributed to various factors including lack of awareness about the accounts, perceived complexity of managing them, and low health insurance literacy​ (JAMA Network)​​ (American Wealth Management)​.

The demographics of HSA users suggest another layer of complexity. Those obtaining health insurance through exchanges are more likely to lack an HSA compared to those insured through their employers. This difference underscores the role that employer support can play in promoting HSA enrollment​ (JAMA Network)​.

Potential Benefits Overlooked

The benefits of HSAs extend beyond just tax savings. These accounts can also be used as investment tools, where funds can grow over the years and be used to pay for medical expenses during retirement when healthcare costs are often higher. However, a portion of the population eligible for HSAs is not fully leveraging these benefits. For instance, many are not aware that they can invest the funds in their HSAs, which can significantly increase their savings potential over time​ (Schwab Brokerage)​.

Addressing the Gap

To increase the adoption and use of HSAs, targeted interventions are necessary. These could include educational programs aimed at improving health insurance literacy and simplifying the process of opening and managing HSAs. Additionally, employers can play a crucial role by offering HSAs alongside HDHPs and providing matching contributions or other incentives to encourage their use.

A company called NewPayHealth is taking another approach to addressing this gap. They have identified that the reason most employees do not contribute is due to a lack of disposable income to fund these accounts proactively. When medical emergencies arise, these employees are faced with paying out-of-pocket or even taking on debt to cover these unexpected expenses. NewPayHealth offers employers an AI-based platform to help employees recoup up to 10 years of medical expenses, providing a benefit that puts real money into the pockets of employees and the potential to put $Millions back into the company treasury through immediate tax savings.

In Conclusion

In conclusion, while HSAs offer a valuable financial tool to offset healthcare costs and save on taxes, they are still not being maximally utilized. By addressing the barriers to adoption and increasing public awareness about the benefits of HSAs, more individuals could benefit from these accounts, leading to better financial and health outcomes. For more details on the specifics of HSAs and their benefits, readers can refer to IRS Publication 969 or visit sites that offer detailed guides on how to manage these accounts effectively.