Employers are increasing the use of so-called HSAs, which are paired with high-deductible health insurance plans, to shift more costs to U.S. workers. The accounts generally require consumers to pay more out of pocket for health care and let them save for medical expenses in their own accounts. Money contributed can grow tax-free and carry over from year to year or to another job.
Bank of America increased the number of HSAs it administers by a record 34 percent last year to almost 200,000, totaling more than $300 million in assets, according to a statement from the Charlotte, North Carolina-based bank today. JPMorgan added a record number of new accounts in 2011, reaching more than 900,000 as of February compared with about 700,000 in 2010, said Elena Szymanski, an executive director who manages the HSA business for the New York-based firm. JPMorgan administers more than $1.5 billion in HSA balances, the firm said in a report also released today.
“We continue to hear from our clients and customers about health care,” Justin Raniszeski, health benefit solutions executive for Bank of America Merrill Lynch, said in a telephone interview last week. “They need help affording health care and controlling costs.”
Companies buying health coverage for workers spent the most this year since 2005 and costs may reach $32,175 for a family in 2021, according to a September report by the Henry J. Kaiser Family Foundation in Menlo Park, California, and the Chicago- based American Hospital Association’s Health Research & Educational Trust.
The average cost of a family policy climbed 9 percent in 2011 to $15,073, with employees paying 28 percent of premiums, according to the Kaiser survey. That compares with the average premium for a high-deductible plan of $13,704 for a family. Among workers offered health benefits, 17 percent are enrolled in a high-deductible health plan with a savings option, compared with 13 percent in 2010, according to the study.
To defray costs, companies are offering health benefits with lower premiums and deductibles of at least $2,400 for a family plan that are paired with a tax-free medical expense account such as an HSA, the Kaiser survey showed.
“People are really starting to be able to use these as a true savings vehicle,” JPMorgan’s Elena Szymanski, who is based in Chicago, said in a telephone interview last week. “About 74 percent of folks out there contributed more than they spent.”
Money deposited in HSAs by individuals or their employers generally isn’t taxed and may be kept in cash or invested. Contributions are capped at $3,100 for an individual and $6,250 for families in 2012, according to Internal Revenue Service rules. Funds in HSAs may be rolled over from year to year and accounts are portable if workers change jobs.
Average balances of HSAs administered by Bank of America rose to more than $1,600 last year, a 10 percent increase from 2010, according to the statement. At JPMorgan the average HSA balance increased 4 percent last year to $1,547, the report showed.
While most HSA account holders keep their savings in cash to spend on medical expenses during the year, more people are investing funds as balances rise, said Szymanski. Last year about 9 percent of individuals with an HSA investment account at JPMorgan had a balance of more than $20,000, compared with 3 percent in 2009, she said.
Individuals with HSAs at JPMorgan need at least $2,000 before they can start making investments, Szymanski said. Account holders at Bank of America may invest money in excess of $1,000, said Raniszeski.
“There will be a time where the menus are going to be diverse like 401(k)s,” Kevin Crain, head of institutional retirement and benefit services at Bank of America Merrill Lynch, said in a telephone interview referring to investment options in HSAs. Other banks and mutual-fund firms including Wells Fargo & Co. and Fidelity Investments also administer HSAs.
Earnings and withdrawals from the accounts are tax-free if used for qualified medical expenses, otherwise there’s a 20 percent penalty, according to IRS rules. After age 65 or becoming disabled, account holders may take money out of their HSAs for non-medical reasons without a penalty and pay ordinary income tax on withdrawals.