Summary
Plan sponsors that wish to introduce or continue offering health savings account (HSA)-eligible health plans as part of their workplace benefit program can benefit from a long-term view of HSA accountholder behaviors. As such, the Employee Benefit Research Institute has undertaken a series of longitudinal studies from its HSA Database, examining trends in account balances, individual and employer contributions, distributions, invested assets, and account-owner demographics from 2011‒2020. Such analysis can help not only plan sponsors but providers and policymakers better understand strategies that can help improve employee financial wellness.
The Employee Benefit Research Institute (EBRI) developed the EBRI HSA Database to analyze the state of and individual behavior in health savings accounts (HSAs). The HSA Database contains 11.4 million accounts with total assets of $32.9 billion as of Dec. 31, 2020.
Key findings:
HSAs offer a valuable tax incentive to set aside money on a tax-favored basis for current or future medical expenses. However, account owners often appear to be using the accounts primarily to cover current expenses, such as deductibles, coinsurance, and copayments, rather than fully taking advantage of the tax preference by contributing the maximum or maintaining HSA balances for retirement health care expenses. Further, use of investments other than cash within HSAs remains low.
From this study, we observe the following about HSA utilization:
- Modest balances: Between 2011 and 2020, end-of-year account balances increased but remained low.
- Contributions below the maximum: Average total contributions — combined individual and employer contributions — increased. However, the average was just above the minimum allowable deductible amount for family coverage and less than one-half of the allowable contribution maximum for family coverage.
- High incidence of withdrawals: Overall, just over half of accountholders withdrew funds.
- Low use of investments: Very few account owners invested their HSA balance despite the tax-saving possibilities.
- Impact of the COVID-19 pandemic: Between 2019 and 2020, average annual individual contributions fell. It is possible that as unemployment increased during the pandemic, HSA owners reduced contributions. Notably, average annual distributions fell as well, reaching an all-time low. The decline in both contributions and distributions may also be due to lower use of health care services during the pandemic.
One feature of HSAs is that accountholders can build up a balance for unexpected major medical expenses in the near future and/or for retirement — there is no use-it-or-lose feature. So while, on average, accountholders appear to be using HSAs as specialized checking accounts rather than investment accounts, this behavior appears to change the longer an HSA owner holds an account. In other words, longitudinal analysis shows that the longer individuals own HSAs, the greater the likelihood their usage becomes more investment-like. Over time we see increased size of balance, larger annual contributions, and greater use of investments.