In 2016 alone, 20 million Americans held a health savings account (HSA). That’s up from a 3 million recorded participation from it’s introduction in 2004.
A recent report revealed that between 2015 and 2016 HSAs saw an extra 648,000 enrollees. For example, America’s Health Insurance Plans says that’s an average net increase of 3.4% for the year.
My name is Sahm Adrangi, founder and CIO of Kerrisdale Capital Management. We focus our research on misunderstood sectors of business, particularly telecommunications, mining, biotechnology. Today, I, Sahm Adrangi will discuss what may be driving HSA popularity.
Sahm Adrangi – What is an HSA?
HSAs allow customers to contribute pre-tax dollars to a savings account. This account is always dedicated to certain medical expenses. Federal law permits them to contribute up to $3,450 each year for an individual and up to $6,850 for a family.
It’s also important to keep in mind that HSA-HDHP enrollees must meet their health plan’s full deductible, which can be high-cost. Only then will their plan cover certain services and treatments.
Why more people are choosing HSAs
Potential control and savings
Consumers are turning to HSAs in droves. The cause? More people feel that HSAs offer more control over their health care and they cost less.
Individuals HSA enrollees now have the power to shop around. Simply put, consumers feel that their money is saved for the best, most cost-effective services.
There is no doubt that plans are inherently designed to return the power of choice to consumers. So, many include tools to better educate. Resources are now available so that members have access to information like:
- Physician reviews and outcome data
- Hospital reviews and outcome data
- Specific health care costs
- Access to personal health records
Triple tax advantage
Another major draw for consumers is the triple tax advantage.
Contributions, interest and investment income earned on the account are all tax-free. Withdrawals for eligible medical expenses are tax-free as well, while HSA funds offer more flexibility.
Other popular benefits of HSAs include:
- Accounts are individually owned.
- Holders don’t face forfeiture of funds at the end of the plan year
- After the age of 65, holders of HSA funds may use them for any expenses without penalty. This makes them a popular way to pay for healthcare expenses after retirement.
- HSAs are often used to cover a wide range of expenses, not only those associated with the member’s health plan.
A closer look at the industry
In the most recent report by AHIP, HSA-HDHPs enrollment increased by almost 400% over just a decade. The increase from 2007 to 2017 was just over 17 million enrollees.
Research found that between January 2016 and January 2018, there was an 8% increase in market enrollment. The 45 health insurers that responded to both a 2016 and 2017 survey saw a 9.2% increase in HSA-HDHP enrollment.
Furthermore, reports said that:
- More than 80% of participating health insurers offered their HSA members special services. Those services included cost and quality data. As well as, wellness and health resources and online access to medical account info.
- Almost 60% of responding health insurers hired health advocates to consult HSA members.
Sahm Adrangi on the future of HSAs
Some market experts place HSA accounts at nearly 30 million by the end of 2020. That’s more than $75 billion in assets. The reason is obvious although viability remains to be seen – consumers are seeking greater value from health insurance plans. As the market advances, it’s possible that changes could occur in legislation.
At Kerrisdale Capital, I Sahm Adrangi have investigated and published reports on companies that offer health savings accounts. At Kerrisdale Capital, we focus our efforts on educating the public by publishing these reports on our website, Twitter feed, and third-party investment related websites.
Learn More About the Author: Sahm Adrangi
Mr. Adrangi began his career in finance with Deutsche Bank. He then advised creditor committees in bankruptcy for Chanin Capital Partners. Following his work in banking, Sahm Adrangi spent several years with Longacre Management, a multi-billion-dollar distressed hedge fund. Today, he is active in the ongoing development of his firm, Kerrisdale Capital Management.
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