A long-term view of account holder behaviorsNew data from the Employee Benefit Research Institute (EBRI) HSA Database, in a recently published Issue Brief by EBRI’s Paul Fronstin. Reprinted with permission. Visit here.
The Employee Benefit Research Institute (EBRI) developed the EBRI HSA Database to analyze the state of and individual behavior in Health Savings Accounts (HSAs). The HSA database contains 5.9 million accounts with total assets of $13.4 billion as of Dec. 31, 2017. This Issue Brief is the second longitudinal study from the HSA database and supplements the annual cross-sectional analyses. It examines trends of account balances, individual and employer contributions, distributions, invested assets, and account-owner demographics from 2011‒2017. Plan sponsors who wish to introduce or continue offering HSA-eligible health plans as part of their workplace benefit program can leverage this long-term view of account-holder behaviors when developing strategies to increase employee financial wellness.
On average, account holders appear to be using HSAs as specialized checking accounts rather than investment accounts. HSAs offer a valuable tax incentive to set aside money on a tax-favored basis for current or future medical expenses. However, most account holders appear to be using the accounts to cover current expenses, such as deductibles, coinsurance, and copayments, rather than fully taking advantage of the tax preference by contributing the maximum.
- Average total contributions — combined individual and employer contributions — increased from $2,348 to $2,843 between 2011 and 2017. This average was just above the minimum allowable deductible amount for family coverage, but less than one-half the allowable contribution maximum for family coverage.
- Overall, 66 percent of account holders withdrew funds. The average annual amount distributed was $1,725 in 2017, implying an average rollover of $1,119.
- Very few account owners invested their HSA balance in investments other than cash despite the tax-saving possibilities. In 2017, 5 percent had investments other than cash. Longer experience with HSAs improves account-holder prospects for financial security. The rollover feature of HSAs enables account holders to build up a balance for unexpected major medical expenses — in the near future and/or for retirement.
Average end-of-year balances, by the year the account was opened, show that financial security increases over time. Accounts opened in 2007 had an average $8,384 year-end account balance, while accounts opened in 2017 had an average $1,093 year-end account balance.
- Annual 2017 contributions are higher the longer an account owner had an account. Individual contributions averaged $3,201 among those who opened their account in 2007 but only averaged $1,240 among those who opened their account in 2017.
- Older, larger accounts offer a stronger hedge against unexpected bills. Those accounts opened in 2007 had an average annual distribution of $2,568, while those only opened in 2017 took $1,005 in distributions.
Over time, account owners appear to see the value in investing. In 2017, 10 percent of accounts opened in 2007 had investments other than cash, compared with only 2 percent among those opened in 2017. It is possible that rules requiring minimum balances may have prevented owners of relatively new accounts from investing as the accounts would not have reached the minimum balance requirement.