Health savings accounts (HSAs) are rapidly gaining popularity due to their tax benefits and potential to offset the cost of high-deductible health insurance. The number of HSAs is now about 35 million, compared to 11.8 million in 2013, and more than $116 billion is currently held in those accounts, compared to about 10 years ago, according to the data. 500% increase compared to
But the Consumer Financial Protection Bureau (CFPB) says there are hidden costs beneath the surface of these accounts that can preclude the tax benefits provided by HSAs.
“Health savings accounts are encouraged because of the tax benefits that chip away at health care costs,” CFPB Director Rohit Chopra said in a release. “I don't understand the yield,” he added. It will arrive with your account. ”
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The watchdog recently report We highlight some of the costs and fees that many HSA holders incur, and highlight the challenges faced by consumers trying to manage their health care finances and taxes.
HSA tax benefits
Health Savings Accounts provide tax benefits that allow individuals to save on medical costs. First, contributions to an HSA are tax deductible. This means that individuals can reduce their taxable income by the amount they contribute to the account.
Additionally, the funds in your HSA can grow tax-free through investments, and withdrawals for qualified medical expenses are also tax-free. These tax benefits make HSAs a powerful tool for people with high-deductible health plans to manage health care costs while maximizing savings.
HSA contribution limits
However, the IRS limits contributions to health savings accounts each year. The amount you can contribute depends on whether you are single or have family insurance, and whether he is over 55.
Note: for In 2024, HSA contribution limits will reach an all-time high. The annual individual HSA contribution limit is $4,150, and the family coverage limit is $8,300. (These amounts are about 7% more than what you could donate last year.)
Still, the CFPB argues that hidden costs that many people aren't aware of can undermine the potential tax benefits of HSAs.
Hidden HSA costs
1. Fees. According to the CFPB, one of the hidden costs of an HSA is a series of fees charged by financial service providers. These fees include monthly maintenance fees, paper statements, transfer fees, and account closure fees. The agency says these fees can eat into funds earmarked for medical needs and directly reduce the tax savings of HSAs.
2. Portability. Another problem with HSAs is the lack of portability of funds, which the CFPB says creates new costs for consumers. According to the agency, employers often choose a financial service provider for their employees' HSAs, leading to situations where consumers are stuck with their current provider due to high retirement benefits. This lack of flexibility may prevent you from taking advantage of better terms or lower rates elsewhere.
3. Yield. The low interest rate yields offered by many HSA providers is another hidden cost. Despite recent interest rate increases, most providers are offering interest rates well below 1%, and in some cases as low as 0%. As a result, consumers end up paying more in fees than interest, which can reduce the overall value of their HSA accounts, the CFPB notes.
It is noteworthy that the American Bankers Association Health Savings Account Council has expressed disappointment with the CFPB's findings. City Administrator Kevin McKenney said in a statement that many of the fees mentioned in the report no longer exist or are not borne by consumers.
The council believes the CFPB report misrepresents the industry and does not capture the value of owning an HSA.
HSA costs: Conclusion
Meanwhile, the CFPB said it is committed to ensuring that consumers are treated fairly and advocates for greater transparency in this area.
The agency urges account holders to understand the fees, lack of portability and low interest rates associated with HSAs. That knowledge helps people make informed decisions about managing health care costs and maximizing tax savings.
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