Health Savings Accounts Growing, Especially Among the Better Paid

FROM NYTIMES.COM

THE number of people with health savings accounts has ballooned, but higher-income families are much more likely to fund the accounts, a new analysis found.

The number of health savings accounts, or H.S.A.s, has been growing by about one million a year, reaching more than 6.5 million in 2012, according to research published this week in the journal Health Affairs. The analysis covered eight years, although the accounts have been around for more than a decade.

Health savings accounts let consumers save and pay for medical care, free of federal income taxes. Balances are carried from year to year, and consumers can often invest the money for tax-free growth. The accounts are not available to everyone, however. They must be used with a specific type of health insurance plan with a high deductible (at least $1,300 for a single person in 2015).

Adoption of H.S.A.s by workers at the biggest employers, while still relatively limited, nearly tripled in the eight years covered by the study, the researchers found. Typically, the health plans linked to the accounts offer lower premiums, because you will pay more out of your own pocket before meeting your deductible.The new study is the first H.S.A. analysis based on actual tax records, rather than on surveys of consumers and businesses, said Lorens Helmchen, associate professor at the Milken Institute School of Public Health at George Washington University and the report’s lead author. Researchers examined federal income tax data to analyze the number of filers who reported having an account. (Because contributions to the accounts are not subject to federal income taxes, they require the filing of a special tax form.)

H.S.A.s offer the prospect of significant tax savings. Contributions are deducted from pretax income, and any contributions you make from personal funds are tax-deductible — even if you don’t itemize deductions on your return. Withdrawals aren’t taxed either, as long as the funds are used for eligible medical costs.

The researchers found that high-income and older tax filers both established and fully funded their H.S.A.s at least four times as often as low-income and younger filers. (It remains to be seen, the study noted, whether the Affordable Care Act changes that dynamic. Many plans sold on government exchanges offer H.S.A.s, but the study ended before the marketplaces began operating.)

Timothy Hayes, a financial planner near Rochester, said the accounts might be attractive to consumers who have funds to invest longer term, because they can be used to pay not only for medical care in retirement but also for costs like long-term-care insurance premiums.
Mr. Hayes said he advised clients that, if they could, they should pay for current medical costs using other funds, and let their H.S.A. contributions grow for future use. Even though it’s convenient to pay for medical care with the debit card that most health savings accounts provide, he said, try to resist the urge: “You’ll be happy to have that money, when you’re older.”

Here are some questions and answers about health savings accounts:
■ What is the maximum contribution to a health savings account?
For 2015, the maximum for an individual is $3,350, and $6,650 for a family. (Optional contributions from an employer count toward the total.) In 2016, the cap for an individual remains the same, while the amount for a family will rise by $100, to $6,750; the lack of a big change is because of “tepid” inflation, according to the Society for Human Resource Management.

■ Can I make “catch-up” contributions to my H.S.A.?
Yes. If you are 55 or older, you can add an extra $1,000 a year to your account.

■ Is an H.S.A. the same as a health care flexible spending account?
No. The accounts sound alike, but have different rules. For instance, you can’t take an F.S.A. with you, if you change jobs.