Fidelity Finds Little Knowledge About HSAs

Many people are unaware of their triple tax advantages, that balances can be carried forward and that the money can be invested.

Fidelity’s health savings account (HSA) business is seeing double-digit growth, with assets in these accounts now topping $3 billion—a 50% increase from 2017. Fidelity now serves 837,800 HSA account holders, and last year it added 117 new employers that provide HSAs to their employees.

Fidelity says that 25% of employees with access to an HSA are using one. When employers offer only an HSA-eligible health plan, 46% of workers add this savings benefit. However, Fidelity’s research also finds that, despite growth in HSA openings, many individuals are not making the most of the benefits these accounts can offer.

“With more than half of Americans naming rising health care costs as a top financial concern, this increased adoption of HSAs shows an encouraging trend that more people are making health care savings a priority,” says Eric Dowley, senior vice president, HSA product management, in the Fidelity Health Care Group. “But we still see a need for more education around how people estimate and plan for potential health care costs, both in the short and long term, and how an HSA can be a valuable tool in addressing these expenses.”

Fidelity notes that HSAs are available only to people in a high-deductible health plan (HDHP). The HSA balance can be carried over from year to year, and the account offers a triple tax advantage: contributions are tax free, balances can be invested and earnings grow tax free, and if the money is used for qualified medical costs, savings can be withdrawn tax free. However, at age 65, HSA account holders can use the money for things other than medical expenses, but they will be taxed on the withdrawals.

Fidelity notes that the contribution limits for 2018 are $3,450 for individuals, $6,900 for a family, and $1,000 in catch-up contributions for those over age 55. However, last year, individuals contributed an average of $1,800 and family account owners, $3,800.

Nearly 40% of people are unaware that the money in an HSA can carry forward. Instead, they think if they don’t use it, they will lose it at the end of the year. Additionally, 46% of HSA account holders are unaware they can invest their contribution, and a mere 7.7% actually do invest the money.

Fidelity’s research has also found that people who save in both an HSA and a defined contribution (DC) plan save an average of 10.% of their paychecks, compared with a savings rate of 7.7% for those who save only in a DC plan. HSA savers also have an average of $119,000 more in retirement savings.