Participants Still Not Making Most of HSAs’ Benefits

Despite the continuing growth of health savings accounts, Fidelity has found that many participants in its clients’ 401(k) plans are not making the most of the benefits HSAs offer.

Fidelity’s “Building Healthy Futures” report, an analysis of how people are saving for health care based on the firm’s recordkeeping data, shows that in 2017, 25% of employees with access to a Fidelity HSA were using one, up two percentage points from 2016.

The report also shows that the firm’s HSA account holders are contributing less than half of what they could be to their HSA. According to Fidelity’s data, in 2017 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.

Average HSA contributions tend to be higher if a 401(k) match is offered, Fidelity found. Overall in 2017, the average HSA contribution with no 401(k) match was $2,601, but with a 401(k) match it jumped to $3,348, implying that a match enables participants to redirect more money to an HSA, the report notes.

HSA account owners also still appear to not realize they can invest their contributions in mutual funds or other investment products, depending on available options through their provider. The data shows that a majority of Fidelity’s account owners keep their contributions in cash, with only 8% investing any portion of their savings.

In addition, the report shows that year over year, most of Fidelity’s HSA account holders shift between spending and saving. Among continuous account holders between 2013 and 2017, 55% exhibited a mix of five possibilities (consistent savers, partial savers, mix, partial spenders and consistent spenders) in their spending and saving habits. The next-largest cohort was partial spenders, where 26% of account holders were found to spend 50% of more of contributions every year of the five-year period.

Of these groups, those in the “saver” segment were much more likely to invest their HSA balances, while “spenders” were more likely to keep their assets in cash. Forty-five percent of savers’ accounts were invested in non-cash investments, compared with just 4% for spenders.

Not surprisingly, consistent contributors to Fidelity HSAs were found to have experienced larger increases over time — even when switching between savings and spending. The so-called “mix” segment – those who switched among savers, spenders and hybrids year over year – saw their average balances grow to $5,448 in 2017, from $1,451 in 2013. Even more impressive were the consistent savers – those who saved 90% or more of contributions every year from 2013 to 2017 – who saw their average balance rise to $13,856 in 2017, from $2,260 in 2013.

The report also contends that an HSA is not a “drag” on DC savings. Again using the firm’s recordkeeping data, the research shows that those who save in a 401(k) and contribute to an HSA plan tended to have a higher average 401(k) deferral rate (11%) than those who contribute just to a 401(k) plan (8%). Remarkably, this finding was consistent across all income levels and generations, with the data showing a one to two percentage point higher average 401(k) deferral rate. In addition, the report notes that Fidelity HSA savers also have an average of $119,000 more in retirement savings.

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