Participants in health savings accounts are not taking full advantage of the tax-advantaged savings and investment opportunities offered by the accounts, according to a report by the Employee Benefit Research Institute.
Participants in plans provided as part of an employer benefit package are not contributing as much as they could and are using accounts for small medical expenses, the report said. The accounts could be more useful if they were saved for large expenses and retirement health costs, with the funds invested in the meantime, rather than being held as cash, EBRI said.
Between 2011 and the end of 2020, end-of-year account balances increased but remained low, growing from $1,990 to $3,622, the report said. Balances grew only $400 between 2019 and the end of 2020. The HSA database from which the information was gathered included 11.4 million accounts with total assets of $32.9 billion.
Distributions also fell during the pandemic. In 2020, average annual distributions fell to an all-time low of $1,714, indicting a lower use of healthcare services during the pandemic, EBRI said.
EBRI noted that few account owners put their HSA balance in investments, but instead hold the balances as cash. In 2020, 9% of accounts were invested, up from 2% in 2011. The longer an account is open, the more likely that the funds are invested, EBRI said. Only 4% of accounts open for a year had investments, compared with 13% in accounts open for 10 years.
“One feature of HSAs is that account holders can build up a balance for unexpected major medical expenses in the near future or in retirement—there is no use-it-or-lose feature,” EBRI said. “On average, account holders appear to be using HSAs as specialized checking accounts rather than investment accounts. However, this behavior appears to change the longer an HSA owner holds an account."