Most owners of health savings accounts (HSAs) don't take full advantage of them, says a new report from the Employee Benefit Research Institute (EBRI).

A Washington, D.C.-based independent, nonprofit industry organization, EBRI studied some 13 million HSA accounts totaling nearly $40 billion in assets and found that most aren't used to their full potential.

HSAs have been around since December 2003. They are only for people with certain high-deductible health plans and they allow account holders to put aside money to help pay those high deductibles and other medical expenses later, as needed. They are also considered great savings and retirement-planning vehicles, since money that goes in can be deducted from federal income taxes and grows tax-free. If used for qualified medical expenses, funds can be withdrawn tax-free at any time. Moreover, the money does do not have to be used by a specific date. So if left untouched, accounts can grow indefinitely.

Most HSA account holders, though, use the savings to pay for current expenses—like a cash account, said EBRI’s Jake Spiegel, a research associate in health and wealth benefits research, in a press release. Few invest the full amount allowed, he added, therefore failing to reap the full tax benefits.

“Average contributions are well below the statutory maximum,” he said.

That maximum changes every year. For 2023, the maximum contribution for individuals is $3,850; those with a family plan can contribute up to $7,750. But in 2021, the average contribution was $927 less than the maximum allowed that year for individuals and $4,527 less than the maximum for account holders with family coverage. (Contributions can be made through a payroll deduction and/or separate deposits.)

Nevertheless, the news was not all bad. Average balances in HSAs rose 19% between 2020 and 2021. In fact, they have trended upward over the past nine years that the survey has been conducted.

What’s more, more people are investing their HSA funds in assets other than cash. "The share of account holders who invest their HSAs [instead of leaving it in cash] has steadily risen," said Spiegel.

It’s still only 12% of account holders who invest in assets other than cash, but the percentage has been growing for the past five years, and 2021 saw the largest year-over-year increase in accounts invested in non-cash assets.

One of the key advantages of HSAs is that balances can be rolled over year after year for future medical expenses. In this way, they can be an important retirement savings tool. But more than half of account holders withdrew funds to cover current medical expenses. Presumably they could not wait.

That’s too bad, said Paul Fronstin, EBRI's director of health benefits research, in the press release.

"Medical expenses in retirement can be substantial," he noted, adding that many HSA holders are using them like checking accounts, not investment accounts.

The exception, though, are those who have held HSAs longer.

"Our research found evidence that the longer an account holder had their HSA, the higher the likelihood that the account holder invests their HSA assets other than in cash, in addition to contributing more on average and enjoying higher account balances," said Fronstin.