Pub. 4 2014-2015 Issue 3

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S November • December 2014 21 penalty-free; nonqualified distributions are subject to tax and an additional 20 percent penalty tax. A benefit of an HSA is that balances carry over from year to year, unlike flexible spending accounts or cafeteria plans. All unused dollars still in the HSA at the end of the year remain in the account and may be used for future qualified medical expenses. Account owners have been able to accumulate substantial balances over the years. HSAs in 2014 & Beyond The direction of where HSAs are headed is unknown. Before the ACA, the HSA marketplace was limited for most financial organizations because the vast majority of people enrolled in HDHPs were receiving coverage through their employer who had a directed custodian in place. This allowed the employer to send payroll contributions on behalf of the employee and employer to one custodian—employees generally had no control over where their HSA was set up. If your organization was not selected as an HSA custodian, odds are only a relative handful of your customers opened HSAs with you in the past. HSAs & HDHPs originally were created to give small em- ployers the opportunity to offer health care at a lower cost to their employees when they previously couldn’t afford it. What happened, ironically, is that only a handful of small employers began offering health care, but many large employers began converting their traditional HMOs and PPOs to theHDHPs to cut costs. This drove the explosion of HDHPs and HSAs from 2004 to today. To put HSA growth into perspective, industry sources report that in 2006, HSAs held approximately $1.7 billion. At the end of 2012, that number had risen to $15.4 billion, nearly a ten-fold increase. Even more amazing is that the dollar growth more than doubled every two years— even at the height of the Great Recession. Since 2008, the number of individuals with HDHP/HSA coverage expanded from6.1 million to 15.5 million. All of this is ancient history—or is it? The employer- provided health care marketplace still is driving towards HDHPs with HSAs. Even without the new health care law, this trend would have continued into the future. Under ACA, all Americans are required to be enrolled in a health insurance plan or face tax pen- alties. While these penalties are not severe in 2014, the penalties will increase in the years ahead. Many young Americans will need to enroll in health plans, particularly individuals turning 27 years old who are no longer covered on their parents’ plans. Quite likely, the number of HDHPs and HSAs will continue to accelerate, which makes it quite probable that the proliferation of HDHPs and HSAs will continue to accelerate. Younger, healthier Americansmay look to the newhealth care exchanges to purchase themost affordable health care insurance they can. The various state health care exchanges and the federal exchange are now “open for business” and allowing people to shop and enroll for health care in 2014. This presents a whole new touch point for financial organizations that are looking to attract new customers, accounts, and revenue streams. With in- dividuals buying their health plans directly from the exchanges,  Affordable Care Act  continued on page 22