Relatively few health savings accounts (HSA) are invested, eliminating one of the product’s biggest advantages.
Recent analysis from the Employee Benefit Research Institute (EBRI) finds that only 13% of accountholders invested their HSAs in assets other than cash, suggesting many consumers need help understanding how they work.
The report “Health Savings Account Balances, Contributions, Distributions, and Other Vital Statistics: Evidence from the EBRI HSA Database” also found that HSA balances continue to increase despite higher healthcare spending.
“The context here is that that number was really low for HSAs, and I don’t think that we broke the 10% threshold until maybe 2020,” Jake Spiegel, the report’s author, said. “It’s really just more the context that very few people invested their HSAs for most of their existence. The 13%, yes, that’s a small number, but I’m encouraged because it’s trending upward.”
The reason, he added, is a need for increased education and awareness.
“If I had a nickel for every time I was talking to a friend who was confused between HSA and FSA, I’d probably retire tomorrow,” Spiegel quipped.
He noted that people tend to invest their HSA balances only when they’ve accrued significant funds, and some HSA providers only allow investment after a certain asset threshold is reached. Introducing that “behavioral friction” will lead more people to disengage.
“And you may not necessarily really internalize that you have the ability to invest your HSA until you sat through that HSA benefits seminar for the second, third, fourth time,” Spiegel said. "So, a couple of factors are at play here that are highly correlated with the propensity to invest.”
Spending More
The report found that patient spending on health care increased in 2022, continuing a trend observed post-COVID-19 pandemic. Still, average end-of-year HSA balances were higher than average beginning-of-year balances. Average balances increased at an even faster rate in 2022, conditional on those accounts receiving either an employee or employer contribution over the course of the year.
Also, most accountholders took a distribution in 2022. More than half of the HSAs in EBRI’s database saw a distribution in 2022; the average distribution was $1,868.
Finally, Spiegel’s report found that age and tenure play a major role in HSA utilization. Consistent with previous findings, accountholder age—as well as accountholder tenure—is closely related to average balances, contributions, and distributions, as well as the propensity to invest.
On average, older account holders contributed more to their HSAs, had higher balances, more frequently took distributions, and were more likely to invest at least some portion of their HSA in assets other than cash.
