How Healthy are HSAs under Trump?
If there is one constant in American politics it’s that with every new administration comes change. In the first 100 days with Donald Trump as president this is already evident.
One of the first questions I received after the 2016 election was if I thought health savings accounts (HSAs) are at risk of being negatively affected or eliminated. My answer—absolutely not. Of all the subjects discussed during the campaign it was one of the few issues both sides agreed on.
HSAs became available in January 2004 at a time when employers were actively seeking to lower healthcare expenses for their employees. Hence, the growth of high deductible health plans (HDHPs) emerged. By the end of 2007, approximately 10% of employers offered an HDHP. The key driver clearly was economics. For early adopters, acceptance of these high deductible plans required education and support of HSAs.
In January 2008 we witnessed the introduction of the Affordable Care Act (ACA). While we can debate whether the ACA was successful in its intended mission what it did on a large scale was bring the cost of healthcare to the forefront of everyone’s mind — legislators, employers, insurers, and most importantly, consumers. It also drove more employers to offer HDHPs. By the end of 2012 more than 30% of employers made HDHPs available to their employees. At the same time, millions of Americans had access to high deductible plans through various federal and state exchanges.
The ACA also surprisingly led to the rise of what I call the “defined contribution health plan.” Many employers started giving employees additional compensation to purchase their own healthcare, and directed them to the exchanges instead of offering employees a health plan option. But an important missing component of the exchanges was information and access to HSAs. Plus, some of the exchanges neglected to even note whether a health insurance plan was HSA-eligible.
HSAs and the dollars invested continued to grow at an accelerated rate. At the end of 2007 there was an estimated three million HSAs holding approximately $3.4 billion in assets. By year-end 2012 HSAs grew to 8.2 million with $15.5 billion in assets. By the end of 2015 there were 16.7 million HSAs with $30.2 billion in assets – $4.2 billion of which was held in investment accounts.
In 2016 Ascensus witnessed an 18% growth rate in HSAs at the banks and credit unions they support. According to Denevir’s research, it is expected that HSA assets reached $36 billion with $5.4 billion in investments by the end of 2016. Regardless of the legislation, economics will drive employers and consumers to the most effective use of their dollars. This has been proven since the inception of HSAs and will remain so with the new administration.
The current debate is to what degree the ACA will be changed, repealed, or replaced. The first version of a potential replacement, the Patient Freedom Act, has been introduced in the Senate — this act actually proposes a “Roth HSA.” But what appears consistent with the new administration is that HSAs will remain a vital part of any change. The proposals consistently include an HSA component.
For the first time in many years consumers will frequently see healthcare and HSAs in the headlines for the foreseeable future. Consumers who have had HSAs and understand their benefits will continue to move HSA dollars into investments and see these as part of their retirement package. Consumers who have been shifted to an HDHP but are not educated on how to open and manage an HSA will seek those answers on a larger scale than at any time before in history. Consumers of all generations will seek HSA information from sources they trust. So as a financial services organization, ask yourself if you can afford to not be that trusted source and not participate in the HSA market. Those that do will benefit from this renewed momentum.