Health Savings Accounts: A New Source of Share Growth

Health Savings Accounts (HSAs) are a new form of medical expense accounts for individuals. Credit unions have an opportunity to expand member and business relationships and grow shares by offering HSAs.


Health Savings Accounts (HSAs) are a new form of medical expense accounts for individuals. High adoption rates could result in solid long-term deposit growth for credit unions that choose to offer HSAs.

Enacted as part of the Medicare legislation in 2003, these accounts became effective in 2004. Both individuals and businesses may find this to be an attractive alternative to existing health plan options. Their adoption rate is expected to rise sharply over the next five years.

What is an HSA?

HSAs are offered with high deductible health plans and give individuals the ability to deposit up to the deductible amount in their account annually, then utilize these funds on a tax-free basis for qualified medical expenses. Deposits can be made by the individual, his employer or even the insurer in some cases, and are not considered income for federal tax purposes.

Any funds remaining at the end of the year are rolled over (no "use it or lose it" restriction) along with any interest earned for use in later years. The accounts are held in individuals' names so that they remain with the person even if he or she retires or changes employers. Almost anyone can set up an HAS. The only exception is retirees over age 65 and on Medicare who are not allowed to contribute but may draw down funds from an HSA.

Why are HSAs an Attractive Option?

Aside from the tax advantages, HSAs are designed to make health care costs more competitive and transparent. For individuals and businesses that pay for medical insurance, the high deductibles mean lower insurance premiums - as much as 40 percent below other plans. This aspect is particularly appealing to small businesses that have faced rising health insurance costs in recent years.

The high deductibles also provide a greater incentive for individuals to compare costs of heathcare providers and select the most cost-effective treatments. A broad category of medical expenses, as well as prescription drugs, qualify under HSAs so many types of treatments can be pursued.

What is the Opportunity for Credit Unions?

Credit unions have an opportunity with to expand member and business relationships and grow shares by offering HSAs. Currently, HSAs allow for annual deposits of up to $2,600 for individuals and $5,150 for families. Because these accounts remain in an individual's name and are not dependent on employment status, they are likely to be long-term deposits much like IRAs.

HSAs are currently offered to about 3 million federal employees and retirees as well as some private sector employees. The market will increase, with about 10 percent of employers expected to offer the plans in 2005 and about half of all firms expected to follow over the next five years, with some offering them as their only option.

Any credit union is allowed to offer HSAs and the account design, including minimum deposit and balance requirements, distribution requirements and account fees, is determined by each institution. HSAs provide a low cost source of long-term funds along with transaction activity that can generate non-interest income. The appeal of these accounts to small businesses is an additional incentive for credit unions that are developing business services.

Learn more about establishing HSAs at your credit union from a webcast of a recent webinar: “Opportunities in Implementing Health Savings Accounts”




Nov. 1, 2004


  • Could be a lower cost way to become a PFI than offering free checking! Socially important role for a CU to play in this economy where benefits are more rare and so many have become self-employed after their jobs have been outsourced. Since the responsibility to reconcile medical bills falls on member, these don't look any harder to administer than IRAs to me. Carolyn Warden CCUE
  • Thanks for the information.