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EBRI: HSA Holders Build Balances Despite Pandemic

Industry Trends and Research

In recognition of HSA awareness day, Oct. 15, a new study by the Employee Benefit Research Institute on ways account holders use their HSAs finds that the average account balance rose by more than a third in 2020.

Continuing a trend from previous years, the average HSA balance rose from $2,412 at the beginning of 2020 to $3,290 by the end of the year, according to Health Savings Account Balances, Contributions, Distributions, and Other Vital Statistics: Evidence from the EBRI HSA Database. “Encouragingly, this happened despite a pandemic in which the labor market experienced a significant disruption and despite slightly smaller average contributions than in previous years,” the report emphasizes.  

What’s more, when analyzing only accounts that had received either an employee or employer contribution, the average balance increase was even larger—up 50% for the year. EBRI notes that, in large part, this is because most account holders either did not take a distribution in 2020 or they took a distribution smaller than $500, a decrease from last year.

The analysis also finds that employer contributions can play a role in fostering account holders’ engagement with their HSAs. Accounts that received an employer contribution demonstrated several signs of optimal usage, including higher total contributions and greater likelihood of investments other than cash. 

For instance, EBRI found that the average account with an employer contribution received 22% more in total contributions—$2,834 in 2020 versus $2,320 for the average account without the benefit of an employer contribution. That said, these account holders were more likely to take a distribution and, when they did, took larger distributions than holders who did not receive an employer contribution.

Investment Behavior 

Optimal usage of an HSA from the standpoint of increasing wealth at retirement suggests that account holders 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. 

Unfortunately, relatively few account holders took advantage of this ability to invest assets within their accounts and those who did tended to have very large average balances, the report notes. EBRI found that only about 9% of account holders invested at least some portion of their balance in 2020. 

Account holders with invested assets tended to have higher employee and employer contributions than accounts without invested assets. Among accounts that received either an employee or employer contribution in 2020, accounts with invested assets saw an average employee contribution of $3,664, compared with $1,816 for accounts without invested assets, according to EBRI. 

Additionally, accounts with invested assets had an average employer contribution of $1,089, compared with accounts without invested assets, which had an average employer contribution of $847. 

“That account holders who invest contribute more than account holders who do not invest is not entirely surprising; account holders with invested assets may be in a better position to invest precisely because they are able to contribute more, and so the correlation between employee contributions and investing likely does not indicate causality,” the report states. 

The report further observes that having an employer contribution could make account holders feel more comfortable investing a portion of their HSAs or that account owners with higher balances are more engaged because they have more at stake. It also could indicate that these employers are more engaged with helping employees see the value of using HSAs as longer-term savings vehicles, EBRI notes.  

Account holders with invested assets saw their balances rise faster than accounts without invested assets. Despite the pandemic, many asset classes enjoyed a bull market in 2020. As such, EBRI found that the average account containing investments other than cash grew by $3,420, compared with the average account without, which grew by only $170. 

Of course, not all accounts were invested as aggressively as a 100% allocation to an S&P 500 index fund and accounts that invested tended to have higher contribution amounts. Still, the average balance growth—and average total balance—of accounts with invested assets demonstrates the benefit of investing HSA funds, EBRI emphasizes. 

“Plan sponsors and administrators can play a critical role in helping account holders take a longer view of HSAs and the role they can play in their financial wellness,” says Jake Spiegel, EBRI Research Associate and coauthor of the report. “By fostering employee engagement with HSAs and providing a contribution to their employees accounts, employers can help nudge their employees toward more optimal usage of HSAs.” 

This issue brief is focused on the 11.4 million HSAs in EBRI’s HSA Database that were open for at least some part of 2020, up from 10.5 million open accounts in 2019, and accounting for about 40% of the market.