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Financial Wellness of Long-term HSA Investors Shows Promise

While some studies show that health savings accounts continue to struggle to gain traction, a new analysis finds encouraging signs for future financial wellness for individuals the longer they have and contribute to an HSA.

The Employee Benefit Research Institute’s updated analysis, “Health Savings Account Balances, Contributions, Distributions, and Other Vital Statistics, 2017: Statistics from the EBRI HSA Database,” shows that year-end balances were much higher in HSAs with investments than in accounts that did not have investments.

This finding holds true for both short- and longer-term investing. Among accounts opened in 2017, year-end 2017 balances averaged $5,849 in accounts with investments, but only $987 in accounts without investments, according to EBRI. Similarly, among accounts opened in 2007, year-end 2017 balances averaged $28,866 in accounts with invested assets, but only $6,098 in accounts without investments.

EBRI’s fifth annual report examines HSA account balances, individual and employer contributions, annual distributions, investments and owner demographics, based on the organization’s HSA database, which contained 5.9 million accounts with total assets of $13 billion as of Dec. 31, 2017. EBRI notes that most HSAs in its database are relatively new, with 73% having been opened since 2014. Even in this short window, EBRI emphasizes that the data shows account holders are gradually making incremental steps toward maximizing the savings potential of HSAs.

Both enrollment in HSA-eligible health plans and the number of HSAs have grown significantly since the accounts first became available in 2004 and they are expected to continue growing as a vital component of employment-based health coverage, according to EBRI.

As of Dec. 31, 2017, enrollment in HSA-eligible health plans in 2017 was estimated to be between 21.4 and 33.7 million policyholders and their dependents, and HSA assets were estimated at $45.2 billion. There were an estimated 22.2 million HSAs at year-end 2017.

Investment Activity

One drawback is that only 4% of HSAs in the EBRI HSA Database had assets invested in options beyond cash at the end of 2017. Despite this, the balances in HSAs with investments accounted for 24% of the total assets in the database.

Moreover, nearly 40% of accounts with investments had $10,000 or more in the account at the end of 2017. In contrast, only 4% of accounts without investments ended 2017 with $10,000 or more. EBRI notes that this may be partially due to minimum investment thresholds on accounts.

Consistent with other findings, account holders apparently are also not maximizing long-term savings. While it might be surmised that individuals who invested their account balance were using the account solely as a long-term savings vehicle, EBRI notes that the opposite appears to be true, as both investors and non-investors used the HSA to self-fund current medical expenses.

In fact, investors were more likely than non-investors to take a distribution, at 69% and 64%, respectively. And when distributions were taken, investors expended larger amounts ($2,293) than non-investors ($1,696) during 2017 — perhaps because they had larger account balances.

Contribution Activity

One positive is that the vast majority (95%) of accounts receiving a contribution had a carryover balance at year-end, whereas nearly two-thirds (67%) of accounts with no contributions had a positive balance at year-end. EBRI suggests that this is evidence that account holders are beginning to understand the rollover feature of their HSA.

Furthermore, in 2017, 66% of account holders had positive net contributions, meaning their annual contributions were higher than their annual distributions. EBRI notes that it’s plausible that account holders overestimated their yearly expenses, but adds that it’s “equally possible that individuals intentionally hoped to build up savings in their account.”

Overall, the average HSA balance was $2,764 among account holders with individual or employer contributions at year-end 2017, up from $1,873 at the beginning of the year. HSAs without contributions ended 2017 with an average balance of $1,346.

One downside is that contributions to HSAs are also rarely maximized, according to EBRI. Of the HSAs that received contributions in 2017, only 13% of account holders contributed the fully allowable annual amount. Among accounts with contributions, individual contributions in 2017 averaged $1,949 and employer contributions averaged $895.

This finding is consistent with Fidelity’s 2017 data, which shows that the average employee and employer contributions for an individual was $1,808 out of a contribution limit of $3,400, while the average contributions for a family was $3,807 out of a contribution limit of $6,750.

EBRI’s report further shows that half of HSA owners contributed to their accounts in 2017, while 48% received employer contributions. Meanwhile, 36% of HSAs did not receive any contributions (individual or employer) in 2017.

“When working to support account holders in self-funding uninsured medical expenses, plan sponsors and administrators should bear in mind that most account holders do not maximize their annual contribution and do not invest their assets other than in cash,” EBRI emphasizes. “However, longitudinal results from the EBRI HSA Database do show encouraging signs for future financial wellness for individuals the longer they have and contribute to an HSA,” the report notes.