Tax-favored health savings accounts (HSAs) are more popular than ever.

One reason: when enacted, the Affordable Care Act (ACA) eliminated all two-or-more-employee, small-business health plans that reimbursed individually purchased health insurance.

The alternatives chosen by most business owners with fewer than 50 employees were to offer either

no health coverage, or

HSAs in some form or other.

And for those businesses that offered no health coverage or had no employees, the owners frequently set up HSAs only for themselves.

In one significant respect, the ACA set the stage for small businesses—with or without employees—to hop on the HSA bandwagon.

Growing Popularity

According to a survey released in March 2023 by Devenir, an HSA industry participant based in Minnesota, the number of HSAs as of the end of 2022 surpassed 35 million, and the accounts held about $104 billion in assets.

These numbers represent year-over-year increases of about 9 percent in the number of accounts and about 6 percent in the amount of HSA assets, despite investments that suffered from last year’s poor stock market performance.

Devenir projects that by the end of 2025, the number of HSAs will approach 43 million, with $150 billion in assets.

HSA contribution and withdrawal activity has been substantial. In 2022, account owners contributed $47 billion (up 11 percent from 2021) and withdrew $34 billion (also up 11 percent from 2021).1

Bottom line. It’s fair to say that HSAs have gone mainstream. If you’re eligible to open one, it’s probably a good idea to do ... Log in to view full article.