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 account-holder 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 2011‒2018. Such analysis can help not only plan sponsors but providers and policymakers better understand strategies that can help improve employee financial wellness.
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:
- Modest balances: Between 2011 and 2018, end-of-year account balances increased but remained low — going from $1,990 in 2011 to $2,803 in 2018.
- Contributions below the maximum: Average total contributions — combined individual and employer contributions — increased from $2,348 to $2,919 between 2011 and 2018. However, this 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, 59 percent of accountholders withdrew funds. The average annual amount distributed was $1,865 in 2018, implying an average rollover of $1,054.
- Low use of investments: Very few account owners invested their HSA balance in investments other than cash despite the tax-saving possibilities. In 2018, 6 percent had investments other than cash.
One feature of HSAs is their rollover feature, which enables accountholders to build up a balance for unexpected major medical expenses — in the near future and/or for retirement. 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 more owners have experience with HSAs, the greater the likelihood their usage becomes more investment-like. Over time we see:
- Increased size of balance: Accounts open for one year had an average $1,018 year-end account balance, while accounts open for 10 years had an average $7,589 year-end account balance. This demonstrates that the propensity to save in an HSA increases over time.
- Larger annual contributions: Individual contributions averaged $1,166 among those accounts open for one year but averaged $3,355 among those accounts open for 10 years. In other words, annual 2018 contributions were higher the longer an account owner had an account.
- Greater use of investments: In 2018, 2 percent of accounts open for one year had investments other than cash, compared with 10 percent among those open for 10 years. It is possible that rules requiring minimum balances may have prevented owners of relatively new accounts from investing, as the accounts would not have reached the minimum balance requirement. Either way, over time, account owners appear to see the value in investing their HSA balances.
Notably, older, larger accounts appear to offer HSA owners a stronger hedge against unexpected bills. Those accounts open for one year had an average annual distribution of $1,109, while those open for 10 years had $2,729 taken in distributions.