Longer-Term HSA Holders Maximize Benefits for the Future

An analysis from EBRI shows familiarity breeds better usage.

The longer an employee has a health savings account (HSA), the more likely he is to invest and save funds in the account for future expenses, according to an analysis from the Employee Benefit Research Institute (EBRI).

On average, EBRI says, account holders appear to be using HSAs as specialized checking accounts rather than investment accounts, but this behavior appears to change the longer an HSA owner holds an account. In other words, EBRI’s longitudinal analysis shows that the more owners have experience with HSAs, the greater the likelihood their usage becomes more investment-like.

The analysis found that 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, EBRI says.

In 2018, individual contributions averaged $1,166 among those accounts open for one year but averaged $3,355 among those accounts open for 10 years. In addition, 2% of accounts open for one year had investments other than cash, compared with 10% among those open for 10 years.

EBRI notes it is possible that rules requiring minimum balances before investing may have prevented owners of relatively new accounts from doing so, as the accounts would not have reached the minimum balance requirement. Regardless, over time, account owners appear to see the value in investing their HSA balances.

“Such analysis can help not only plan sponsors but providers and policymakers better understand strategies that can help improve employee financial wellness,” EBRI says.

Educating employees about health savings accounts can help them maximize their benefit. “The best time to engage with employees and educate them about health savings accounts is after open enrollment,” says Steve Neeleman, founder and vice chairman of HealthEquity in Draper, Utah.

“Start with three basic messages: HSAs are not use it or lose it accounts, they can be invested and employees can increase how much they put into the account during the year. Light bulbs will go on,” Neeleman says.

Devenir has reported that HSA investment accounts have an average total balance of $15,982—six times larger than a non-investment holder’s average account balance.

In order to educate participants about HSAs, plan sponsors must understand the accounts themselves. And to get employees thinking about HSAs as long-term savings vehicles, Sara Caddy, benefits manager at Dimensional Fund Advisors, says employers should highlight what the ‘S’ stands for—“savings,” versus “spending” in flexible spending accounts (FSAs). She also recommended employers reiterate to employees that the primary expense that increases after retirement is health care. Remind employees that HSA assets left in the account will be rolled over from year-to-year.

A report from Cerulli Associates suggests that pairing HSA and defined contribution (DC) plan communication and administration and modernizing HSA investment menus can help to position HSAs as retirement savings vehicles.

“As individuals become more familiar with HSAs, they are more likely to take advantage of the benefits of the accounts,” says Paul Fronstin, director of EBRI’s Health Research and Education Program.