Retirement & health Planning

Employees Owning Health Savings Accounts Grew Balances, Despite Failing to Optimize Retirement Savings Account Features

How are HSAs actually used by employees?

Excerpts from a new study by the Employee Benefits Research Institute (EBRI), written by Jack Spiegel and Paul Fronstin, reveal interesting saving, spending and investment behaviors. Read the full report here.

A new EBRI study exploring the savings, spending, and investment behavior of employees owning health savings accounts (HSAs) finds the average HSA balance in 2019 grew to $2,672 from $2,187 in the beginning of the year, even with distributions being taken and most funds being left in cash rather than invested. The average balance increase was even larger when analyzing only accounts that had received either an employee or employer contribution in 2019 ($2,232, increasing to $3,055).

The Issue Brief, “Health Savings Account Balances, Contributions, Distributions, and Other Vital Statistics, 2019: Statistics From the EBRI HSA Database,” is the seventh annual report examining account balances, individual and employer contributions, distributions, invested assets, and account-owner demographics. It is informed by cross-sectional data from 10.5 million HSAs with $28 billion in assets from the EBRI HSA Database, covering 40 percent of the universe of HSAs.

How Are HSAs Used By Employees?

“HSA-eligible health plans are an important part of the health benefits landscape, and yet there is little empirical research on how HSAs are used by employees,” said Paul Fronstin, Director, Health Research and Education Program, EBRI, and co-author of the report. “Based on its unique database of more than 10 million HSAs, EBRI seeks to shed light on the ways HSA accountholders contribute to, withdraw from, and invest in their HSAs so plan sponsors, health care providers and policymakers better understand strategies that can help improve utilization of HSAs and, ultimately, overall employee financial wellness.”

There are some disconnects between what personal finance experts might consider optimal behavior and the accountholder utilization we observe in EBRI’s HSA Database. While “optimal” usage of an HSA, from the standpoint of maximizing wealth at retirement, dictates that accountholders maximize their contributions, hold investments other than cash, and avoid withdrawing money from their HSAs unless they cannot pay for health care out of pocket, many accountholders in EBRI’s HSA Database do not appear to be following that strategy.

There are some disconnects between what personal finance experts might consider optimal behavior and the accountholder utilization we observe in EBRI’s HSA Database - many accountholders in EBRI’s HSA Database do not appear to be following that strategy...

“Our analysis of EBRI’s HSA Database sheds light on opportunities to improve accountholder engagement with HSAs. For instance, evidence shows that accounts with employer contributions tended to have higher total contributions and more frequently contained investments other than cash,” said Jake Spiegel, EBRI Research Associate and report co-author. “This evidence suggests that employers can play a pivotal role in fostering employee engagement with their HSAs.”

Health Savings Account Balances, Contributions, Distributions, and Other Vital Statistics, 2019:
Statistics From the EBRI HSA Database

Health savings account (HSA)-eligible health plans are an important part of the health benefits landscape, yet there is little empirical research on how HSAs are used by employees. Based on its unique database of more than 10 million HSA accounts, the Employee Benefit Research Institute (EBRI) seeks to shed light on the ways HSA accountholders contribute to, withdraw from, and invest in their HSAs. Such analyses can help not only plan sponsors but also providers and policymakers better understand strategies that can help improve utilization of HSAs and, ultimately, overall employee financial wellness.

Key findings for 2019 are that:

HSA accountholders are increasingly building up savings in their HSAs: The average end-of-year balance ($2,672) was higher than the average beginning-of-year balance ($2,187). The average balance increase was even larger when analyzing only accounts that had received either an employee or employer contribution in 2019 ($2,232, increasing to $3,055).

Employer contributions can play a key role in engaging HSA users: Accounts that received an employer contribution had higher total contributions ($2,846 vs. $2,455) and more frequently contained investments other than cash (9 percent vs. 7 percent). However, these accounts also had larger and more frequent distributions than accounts that did not receive an employer contribution.

The average HSA had a distribution: 63 percent of HSAs experienced a distribution in 2019. Most accounts (55 percent) that did not record a distribution also did not receive either employee or employer contributions. This suggests that the lack of distributions was not because accountholders are increasingly using HSAs as savings vehicles but rather because the accountholder has become disengaged from the account.

The ability to invest assets within an HSA is one of the most beneficial advantages HSAs offer from a wealth-accumulation standpoint, but few accountholders pursue this option: Only 7 percent of HSAs contained assets other than cash.

Access the report here.