Consumers are finally getting the hang of Health Savings Accounts.
That’s the word from the HSA Council of the American Bankers' Association and America’s Health Insurance Plans in their latest HSA data review. After several years of research, the data shows that nearly twice as many people opened a Health Savings Account (HSA) in 2012 as in 2010, and 52 percent of account holders spent more than 80 percent of their money for healthcare expenses. According to the investment consulting firm Devenir, there are now about 11.8 million accounts with an estimated $22.8 billion in assets as of June 2014.
These studies confirm that HSAs are doing what they were meant to do: Help consumers pay for routine healthcare expenses and save towards future medical expenses. And with the Affordable Care Act in play, more Americans are eligible for an HSA than ever before.
It’s easy to understand why HSAs are gaining in popularity among employees with high-deductible health insurance plans. Employers and employees can both contribute to accounts. Most accounts include a nominal amount of interest and many allow investing once a minimal threshold is achieved. Employees can then deduct contributions from their taxes or contribute pre-tax dollars from their paychecks. These funds can be used to pay for out-of-pocket healthcare expenses their group health insurance plans don’t cover. Any unused funds can be rolled over from one year to the next.
What happens to the HSA when COBRA comes into play?
Let’s say an employee with an HSA resigns or is terminated from her job. The money in the account at the time of termination is hers to keep. When she and her dependents become eligible for COBRA, they can take the HSA with them. She can still contribute to the HSA, keep it as long as she wants, and continue to use it to pay for qualified medical expenses, including COBRA premiums, qualified medical, dental, or vision expenses, Medicare premiums, and long-term care premiums.
For employers, HSAs are less complex than Health Reimbursement Accounts (HRAs) from a COBRA administration perspective. Why?
Consider the scenario above, but replace the employee’s HSA with an HRA. When that employee resigns or is terminated and goes on COBRA, the employer still has to continue funding the HRA. If the next year rolls around and the employee stays on COBRA, the employer has to fund the HRA again. That means doling out money for someone who is no longer on the payroll.
But with an HSA, the employer is no longer obligated to contribute money or administer the HSA when the employee or dependents are eligible for COBRA, so it’s a simpler process.
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