HSAs: Past, Present & Future

A Q&A with Alegeus Director of Product Management Lindsay Barnard, reflecting on 20 years of health savings accounts (HSAs).

What’s the number-one thing consumers should know about HSAs?

Many consumers still aren’t aware of the fact that their HSA is not just a tax-free savings vehicle for them to use on healthcare expenses throughout the year, but it’s also a really powerful long-term financial tool that can set them up for success in retirement and beyond. So the fact that this account is flexible, theirs to own, and has the advantage of not just spending now, but also saving for the future – I think that’s the most important thing consumers need to know.

What are some key things employers should keep in mind about HSAs?

Along the lines of the long-term advantages of an HSA, I think some consumers are still very surprised that the returns that they get on investments are also tax-free. So making sure participants know this is important.

Investing can be as easy as starting with one dollar. It’s not some huge decision-making point in the account. You can start really small and ease your way in. I think there’s a lot of room for our partners to educate their account holders on the benefits of starting early in preparing for the long-term.

I also think, from a partner and plan design perspective, employers can get really creative with how they incentivize certain consumer behavior in the HSA. As our partners are working with their employers, trying to dig into what outcomes you can support with an HSA plan, some of those things can be surprising. You’re trying to create a healthier workplace and a healthier employee base. Beyond savings, the HSA can also be used to incentivize healthy behaviors – things like depositing employer funds into HSAs when employees complete certain tasks, like getting a flu shot or completing a wellness exam. The flexibility of the accounts combined with the employer’s goals can create some powerful outcomes.

This year marks the 20th anniversary of the HSA. What’s significant about this milestone?

Twenty years is both long and not that long. We’re reaching the point where we finally have a substantial amount of data and history to show meaningful trends in consumer behavior. And that will only continue to increase. Using this data, we can continue to invest and adapt our products to better meet those consumer needs.

If you look at the HSA early on in its history, it was a very tactical account. There was always the mission to help consumers save more on healthcare expenses. But we didn’t have enough information about how people would engage with these accounts and what their experience would be.

So as we look ahead, sitting here at the twenty-year mark, it’s really exciting to now be able to have those insights and transform them into actionable campaigns. We can develop new tactics that engage more consumers and help them use their accounts even more effectively.

Do you see legislative support for HSAs continuing to grow?

There’s obviously a lot of turmoil in Washington, so the likelihood that new legislation will be passed anytime soon is probably pretty low. That said, we recently saw two HSA bills that had bipartisan support pass the Ways and Means Committee.

We are still seeing the number of bills being proposed that include language to carve out HSAs, to ensure that they preserve their tax benefits, expanding. The rules and rights around HSAs continue to increase. And so for that reason, I do see continued expansion on the horizon. We don’t know exactly when new laws will come to fruition, but certainly by volume, and with heavy support from groups like the HSA Council, there’s a lot of momentum for HSAs in the regulatory and legislative space.

What would you say differentiates the Alegeus HSA from others in the market?

Number one, it’s partnership. Alegeus is in a very unique position to be both the technology provider and the HSA custodian, through WealthCare Saver. The unique combination of those allows us insights into the consumer experience as well as the partner experience, with the governance to address what we hear. We’re able to move quickly and be agile and adapt to the HSA market as it changes.

How about differentiators within the product itself?

As we’ve considered how to build a great HSA experience, we really focused on creating outcomes for all types of consumers. We know that HSA consumers are not all the same, and they don’t all use an HSA the same way. There’s no “one-size-fits-all.” There are a lot of nuances that make it different from, say, a basic checking account.

Three things come to mind for me within our product. Number one, our integrated cost savings and find-care tools that bring together both the HSA experience and the ability for consumers to enter in medical conditions, prescriptions, look for doctors, look for pharmacies, and compare costs to figure out the best value for their dollar.

Often we see those cost-comparison tools existing outside of the HSA experience, and the HSA is really more focused on being a kind of status-quo account. The combination of the HSA and those intelligent cost-saving tools in the same environment is one way we’re focused on creating better outcomes for those that are spending their HSA funds regularly.

For those that are saving more for the long-term or looking for less-active ways to create value, the second thing that differentiates the Alegeus HSA is our high-yield interest option. For account holders looking to earn higher interest on their cash balance, we provide a second deposit option. Powered by Pacific Life as our partner, it allows them to earn much higher interest than they would in a traditional account, without having to do much of anything. They just click a button, and that higher interest is available to them immediately.

And the third differentiator?

The third is our persona-driven investment solution that’s also fully integrated with the HSA experience. Again, investments are something that we want to make as accessible as possible for participants. That means bringing it closer to the HSA experience so it’s not this massive decision that people need to make or something that seems too scary or too sophisticated. We want people to understand they can start creating value for the long-term now.

And so we’ve created an investment solution that has three different paths, each designed around a different investor persona – from least experience to most experience. We see adoption within all three account types that proves the need for investment, personalization, within the HSA space.

So having the multi-path investment solution, the high-yield deposit option, and the integrated, intelligent cost-savings tools all combined create this holistic, differentiated HSA experience.

Can you make some predictions for the future of HSAs?

We continue to see massive growth, particularly in the assets that are within the HSA accounts. Not just an increasing number of people choosing to open an HSA, but building up wealth in those accounts over time. And one of the recent changes that we saw going into 2024 is a significant increase in the contribution limits allowed into an HSA.

Now that we’re two decades into HSAs being available and now having contribution limits in the five figures, that’s starting to gain some traction. We’re seeing attention from those in the financial sector that I don’t think were as engaged with HSAs in the past. HSAs are now proving to be a powerful financial tool for investors, not just an ancillary healthcare account. 

If you look at the history of 401ks and how they developed over time and grew in popularity and got to be this massive industry that they are now, we see HSAs on a similar trajectory. There are a lot of comparisons that you can draw between the two.

When you compare 401ks early in their development and HSAs now, you can start to connect the dots and see the potential for growth and sophistication in HSAs along those same lines. Looking ahead, I do see HSAs having a permanent place in the retirement conversation and having a degree of sophistication and maturity akin to the 401k.