In the midst of higher health care costs, Fidelity Investments
finds that Health Savings Accounts (HSA)s are becoming more popular. The firm’s
2016 year-end report of its own HSA business may reflect some new trends in the
wider HSA industry.
According to the study, adoption of HSAs increased by 21% in 2016,
up four percentage points from 2015. Total HSA assets climbed 47% to reach $2
billion. Fidelity finds the average account holders are younger individuals
with higher incomes. The average account balance was $3,520 and the average
contribution was $3,019.
However, although 70% of employees said they understand how their HSAs
worked, several still had misconceptions about these accounts, and many lacked awareness
of their HSA benefits. Fidelity found that 40% believe they lose unspent HSA
funds each year; 43% don’t know HSA funds have a triple-tax benefit; and 53%
are not aware of the non-medical withdrawal provision available to those ages 65
or older. Furthermore, Fidelity notes that Americans continue to underestimate
how much they would spend out-of-pocket on health care in retirement. Forty-four
percent of employees said they believe they will spend less than $50,000.
Fidelity estimates that a couple retiring at age 65 today would spend about
Additionally, 46% of employees don’t know HSA funds can be invested
in mutual funds.
In fact, only 6.1% of accounts are invested, amounting for 21.1%
of total assets. However, the average asset balance for invested account holders is
$16,000. Moreover, the research suggests several account holders are willing to
learn about the
benefits of HSAs. In 2016, 26.8% of account holders called for assistance and
about 40% took action – a higher rate than what the firm reported for its defined contribution (DC) business.
The research also indicates that savers with HSAs aren’t
necessarily falling back on saving for retirement through tax-advantaged plans.
The report notes that those contributing to HSAs have an average of $119,000
more in DC savings than those that don’t. The firm also notes that HSA account
holders with a DC employer match contributed $1,054 more to their HSA than
those with no DC employer match, “implying that a DC employer match enables the
person to redirect money to their HSA.”