20 Years of HSAs: Exploring the evolution to mainstream status

December marks a historic milestone: It has been 20 years since the creation of health savings accounts (HSAs). Over the last two decades, HSAs have evolved into becoming a core component of benefits offerings that gives employees advantageous tax perks as well as another avenue to invest and pay for medical expenses during retirement. According to calculations based off Devenir’s annual HSA report, over 90 million Americans today benefit from HSAs helping them better manage health care and retirement expenses resulting in $10 billion in additional buying power annually and reducing their income tax burden by a collective $15 billion a year.

HSAs have become one of the most popular tools to manage health care and retirement spending but its evolution to becoming a popular benefit offering has been decades in the making. The health care industry, economy and society we know has continued to change and HSAs evolution was lock step with these shifts to ensure consumers and employers had a clear path to a healthy financial future.

The birth of the health savings accounts

The modern-day HSA that we’ve come to rely on has evolved significantly since the concept of tax-incentivized health care accounts began in the late 1970s. However, the framework of HSAs took shape in 1996 through the Health Insurance Portability and Accountability Act (HIPAA) which created medical savings accounts, or MSAs. These accounts were an experiment for helping lower health insurance premiums by allowing small employers and the self-employed to put aside tax-free dollars to pay for medical expenses. It wasn’t until the Medicare Modernization Act that MSAs transformed to become HSAs.

The early days of HSAs were mainly focused on explaining the concept of what the account was and how high deductible health plans (HDHPs) worked. There was very little competition among providers and the few companies in the space were focused on understanding how to do the basics at scale, like new account enrollments and seamless contribution processes.

As new technologies entered the market and providers understood how to scale HSAs, health care costs continued to increase making way for HSAs as a concrete solution to provide tangible savings for employers and employees alike.

HSAs mainstream adoption

While the evolution of HSAs took shape in many different phases, one important phase was a result of the Affordable Care Act in 2010. With the additional emphasis on affordable health care coverage, and because of other provisions of the Act such as the Cadillac Tax provision, many employers and employees elected to adopt cost-saving measures more aggressively, which resulted in a boost in popularity of HDHPs and HSAs. The expected impact of the Cadillac Tax loomed large over a lot of employer-sponsored health plans, and even after several delays in its implementation, the tax provision likely resulted in some fundamental shifts on how companies provided health care coverage to employees. Congress however continued to delay implementation before the tax was repealed in 2019. By then, HDHPs and HSAs had become a mainstream offering by large employers looking to control costs.

Between the premium savings, tax savings, expanded health care buying power, and the more than $100 billion held in HSA accounts today, the total economic impact of HSAs since their inception easily exceeds a trillion dollars. That is a trillion dollars that has directly benefited Americans using HSAs to better afford and manage their health care. While HSAs did not solve all that ails our health care system, they have proved themselves as an invaluable tool to provide employers and employees the means to control their overall costs. HSAs remain a remarkably viable part of the entire health insurance and benefits marketplace and can be integrated seamlessly into the overall benefits ecosystem that includes such benefits as health reimbursement and flexible spending accounts, all of which are integral to helping employers recruit and retain talent.

Forecasting the next 20 years

While the last 20 years have marked significant changes for the entire health care industry, the next 20 will continue to see HSAs evolve even further. We can expect to see the market continue to mature. For providers, competition will be high, and employers’ expectations will increase. Today’s expectations are more robust than ever and require complex delivery to meeting market demands. Look out for HSA and benefits providers to enhance their overall communications strategy while also doubling down on how technology can enhance the user journey.

Related: The young workforce is driving consumerization of health care and the demand for HSAs

Another noteworthy shift in the industry will be how consumers use their HSA. The majority of account holders simply use their HSA as a spending account and not an investment tool. Due to the tax advantages that HSAs provide as an investment and retirement planning tool, employers and providers alike are already doubling down on features and resources to encourage more consumers to invest their HSA balance.

In the last 20 years, HSAs have provided Americans with the financial incentives to better understand their health care spending, hold down costs and take positive action to maintain their health and wellbeing, both now and into retirement. The evolution has been fascinating to be a part of and I am excited to be a part of the industry as we shape how HSAs will help consumers manage their health care expenses and be prepared for the cost of retirement in the future. Onward to the next 20 years.