Account holders apparently are still using their HSAs for health care spending instead of taking full advantage of saving and investing their accounts for health care expenses in retirement, a new report finds.
According to Lively’s second annual HSA Account Holder Insights report, account holders take about $1,700 in distributions annually, leaving them an average account balance of just over $1,000 in assets. In contrast, the most investment-savvy HSA account holders are focused on maximizing their HSAs for retirement. They had an average balance of more than $36,000, with 96% of those assets invested and an average age of 59. This account balance grew 11%, up from $33,00 in 2020, due to strong market performance, the report notes.
Lively also found that investing fell sharply for the 80% of account holders who do not already heavily invest their HSA funds. According to the firm, this indicates that the pandemic, unemployment and ongoing worries caused by both continue to prevent account holders from achieving the long-term benefits of using an HSA to save for unexpected health events and the high cost of health care in retirement.
“We knew that Americans were withdrawing funds from their IRAs and 401(k)s due to the pandemic. But this sharp decline in HSA investing shows just how much COVID-19 has threatened the confidence of the millions of people currently saving for retirement,” notes Shobin Uralil, COO and Co-Founder of Lively. “People need more personalized and consumer-friendly tools in their hands to help them get back on track and prepare for future health events.”
Additional findings show that cash balances remained flat from 2020, but average spend increased for some groups while decreasing for others. Lively found that average distributions increased for those who are actively using their HSA as a vehicle for health spending and decreased for those who are more focused on retirement savings.
Moreover, families were found to have higher HSA cash balances and utilize HSA investments more than individuals. According to the report, families have an average HSA balance of about $7,500 compared to $4,300 for individuals. For those who invest, families have an average investment balance of about $12,000 compared to just under $7,000 for individuals. In addition, 33% of families are investors, compared to 27% of individuals, the report notes.
Surprisingly, individual accounts had higher balances, in both cash and investments, than employer-sponsored accounts. Lively found that individuals had an average account balance of $6,543, compared to $3,356 for employer-sponsored accounts. Average cash balances were $3,144 compared to $2,567, and average investment balances were $9,721 compared to $6,005, respectively.
As part of the study, Lively compiled 13 account traits from 50,000 randomly selected HSAs, including accounts with and without active contributions. With this information, Lively used a machine learning k-means user clustering approach (vector quantization) to organize and delineate the optimal number of HSA “personas” based on its data set of anonymous HSA account holders.
According to that analysis, the report divides HSA account holders into seven distinct personas based on saving, spending and investing data, providing a view into how consumers are using their HSA funds.
- “Base Jumpers” with an average balance of $1,010 are the largest contingent (55%) of holders, are new to HSAs and 89% have never invested.
- “Cartographers” sit in the middle with an average balance of $7,079, but over 90% of their balance is invested and they are focused on long-term savings.
- “Catalysts” with an average balance of $6,067 are the second largest segment (23%) but keep most of their funds are in cash and 84% have never invested.
- “Conductors” with an average balance of $6,690 are the fourth largest segment of HSA accounts (4.2%) and have made strides towards saving their HSA for the future.
- “Mavens” are the oldest of the persona groups, have the highest average balance at $36,763, and use their HSA primarily as a retirement savings vehicle with 98% of assets invested.
- “Mayors” have an average balance of $26,837, have 76% of their assets invested, but are also seeking to maximize the short- and long-term benefits of their HSA.
- “Monopolists” have an average balance of $23,270, and are the smallest of the groups at 2.8%, but hold large coffers of cash in case they need it with less than 1% of assets invested and are focused on the cost of health care.
