Finance Globe

U.S. financial and economic topics from several finance writers.
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Health Savings Accounts

As the cost of health care continues to rise, consumers flocked to tax-advantaged Health Savings Accounts in record numbers last year.

J.P. Morgan Treasury Services said the average Chase HSA balance of $1,547 in 2011 is 4% higher than it was in 2010, and that the average balance of nearly $1000 for new Chase HSA accounts rose to its highest level in 7 years. The bank said that the average taxpayer in the 28% tax bracket is saving about $500 a year in taxes and that 74% of HSA account holders are contributing more than they spend from the account each month.

“For the third consecutive year we have seen a significant increase in the adoption of HSAs and, more importantly, they continue to be used as an effective consumer tool for managing healthcare expenses,” said Elena Szymanski, Executive Director, J.P. Morgan Treasury Services. “Consumer-driven plans combined with HSAs remain a valuable option for employers and individuals who want to take advantage of paying for medical expenses tax-free.”

Bank of America reported a 34% growth in HSAs in 2011 and added 50,000 accounts. Bank of America said that out of their various health care solutions - HSAs, health reimbursement arrangements (HRAs), and flexible spending accounts (FSAs) - HSAs are the fastest growing, with nearly 200,000 accounts and more than $300 million in account balances.

“The use of HSAs is rapidly increasing, based in no small part on the rising cost of health care to employers and employees alike,” said Kevin Crain, head of Institutional Retirement and Benefit Services for Bank of America Merrill Lynch. “We see more and more companies, including many of our corporate clients in the large and middle markets, adding consumer-driven health plans to their broader benefit offerings.”

HSAs were signed into law by President Bush in 2003 in an effort to help reduce consumers’ costs while giving consumers more control of their health care. Often thought of as a health IRA, HSAs belong to the account holder for their lifetime and offer tremendous tax and health care advantages for the right person. Contributions are tax deductible and the account holder pays no tax on withdrawals for qualified medical expenses.

An HSA must be used in conjunction with a High-Deductible Health Plan, which will have a lower premium than a traditional health care policy. Once enrolled into the HDHP, consumers can open an HSA in a savings account at a bank or credit union or invest it just like they can for an IRA.

“In addition to the tax benefits, these accounts offer individuals more control over their health care spending and the option to accumulate longer-term health savings,” added Crain. “They also encourage more responsible use of health services and lifestyle decisions.”

Annual contribution limits for HSAs in 2012 are $3100 for individuals and $6250 for families., set by the IRS, rose slightly in 2012 for individuals and employees with single coverage, from $3,050 last year to now $3,100, and from $6,150 to $6,250 for employees with family coverage.

For more information on Health Savings Accounts and other health care topics, visit the Finance Globe Insurance articles section.


Sources:
JPMorgan Chase
Bank of America
Internal Revenue Service

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